FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark one) ---------
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8608
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NYNEX CORPORATION
A Delaware I.R.S. Employer
Corporation Identification No. 13-3180909
1095 Avenue of the Americas, New York, New York 10036
Telephone Number (212) 395-2121
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock (par value New York, Boston, Chicago,
$1.00 per share) Pacific and Philadelphia
Stock Exchanges
Twenty year 9.55% Debentures
due May 1, 2010 New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
At February 29, 1996, approximately 437,754,000 shares of Common Stock were
outstanding.
At February 29, 1996, the aggregate market value of the voting stock held by
nonaffiliates was approximately $22,526,820,000.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ..X.. No .....
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Portions of the Registrant's 1995 Annual Report to Stockholders (Part II).
(2) Portions of the Registrant's Proxy Statement dated March 18, 1996 issued
in connection with the 1996 Annual Meeting of Stockholders (Part III).
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TABLE OF CONTENTS
PART I
Item Page
1. Business . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . . 16
3. Legal Proceedings . . . . . . . . . . . . . . . . . . 17
4. Submission of Matters to a Vote of Security Holders. . 17
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . 20
6. Selected Financial Data . . . . . . . . . . . . . . . 20
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 20
8. Consolidated Financial Statements and Supplementary
Data . . . . . . . . . . . . . . . . . . . . . . . . . 20
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . 20
PART III
10. Directors and Executive Officers of the Registrant . . 21
11. Executive Compensation . . . . . . . . . . . . . . . . 21
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . 21
13. Certain Relationships and Related Transactions . . . . 21
PART IV
14. Exhibits, Consolidated Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . 22
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PART I
ITEM 1. BUSINESS.
GENERAL
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NYNEX Corporation ("NYNEX") was incorporated in 1983 under the laws of the State
of Delaware and has its principal executive offices at 1095 Avenue of the
Americas, New York, New York 10036 (telephone number 212-395-2121). NYNEX is a
global communications and media corporation that provides a full range of
services in the northeastern United States and in high growth markets around the
world. NYNEX has expertise in telecommunications, wireless communications,
directory publishing, and video entertainment and information services.
NYNEX's principal operating subsidiaries are New York Telephone Company ("New
York Telephone") and New England Telephone and Telegraph Company ("New England
Telephone") (collectively, the "Telephone Companies") (see Telecommunications
below).
Various services in the telecommunications and wireless communications
businesses are subject to the jurisdiction of state and federal regulators.
Intrastate communications services are under the jurisdiction of state public
service commissions (see State Regulatory below), and interstate communications
services are under the jurisdiction of the Federal Communications Commission
("FCC") (see Federal Regulatory below). In addition, state and federal
regulators review various transactions between NYNEX affiliates.
The operations of NYNEX and its subsidiaries have been subject to the
requirements of a consent decree known as the "Modification of Final Judgment"
("MFJ"), which arose out of an antitrust action brought by the United States
Department of Justice against AT&T Corp. ("AT&T"). Pursuant to the MFJ, AT&T
divested its 22 wholly-owned local exchange companies ("LECs"), including the
Telephone Companies, distributed them to seven regional holding companies
("RHCs"), and distributed the stock of the RHCs to AT&T's stockholders on
January 1, 1984.
The Telecommunications Act of 1996 (the "Act") provides that any conduct or
activity previously subject to the MFJ is now subject instead to the
restrictions and obligations imposed by the Act (see Competition below).
TELECOMMUNICATIONS
New York Telephone is incorporated under the laws of the State of New York and
provides telecommunications services in New York and a small portion of
Connecticut. New England Telephone is incorporated under the laws of the State
of New York and provides telecommunications services in Massachusetts, Maine,
New Hampshire, Rhode Island and Vermont. The Telephone Companies mainly provide
two types of telecommunications services, exchange telecommunications and
exchange access, in their respective territories. The Telephone Companies
revenues comprise 88.1% of NYNEX's operating revenues in 1995. Approximately
87.2% of those revenues are generated by operations in New York and
Massachusetts. In 1995, revenues from one customer, AT&T,
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accounted for approximately 14% of NYNEX's total operating revenues, primarily
in network access and other revenues.
Exchange telecommunications service is the transmission of telecommunications
among customers located within geographical areas (local access and transport
areas, or "LATAs"). These LATAs are generally centered on a city or other
identifiable community of interest and, subject to certain exceptions, each LATA
marks an area within which the telephone companies operating within such
territory may provide telecommunications services (see Competition below).
Exchange telecommunications service may include long distance service as well as
local service within LATAs. Examples of exchange telecommunications services
include switched local residential and business services, private line voice and
data services, Wide Area Telecommunications Service, long distance and Centrex
services.
Exchange access service refers to the link provided by LECs between a customer's
premises and the transmission facilities of other telecommunications carriers,
generally interLATA carriers. Examples of exchange access services include
switched access and special access services.
Certain billing and collection services are performed by the Telephone Companies
for other telecommunications companies, primarily AT&T, and certain information
providers that elect to subscribe to these services rather than perform such
services themselves. In 1995, approximately 1% of NYNEX's total operating
revenues was derived from billing and collection services. In 1990, the
Telephone Companies and AT&T signed a six-year contract extending the Telephone
Companies' roles as AT&T long distance billing and collection agents. The
agreement allows AT&T the flexibility of gradually assuming certain
administrative and billing functions now performed by the Telephone Companies.
The Telephone Companies and AT&T are reviewing a proposed extension of the
contract through December 31, 1996.
There are six LATAs that comprise the area served by New York Telephone, and
they are referred to as follows: the New York City Metropolitan Area (which
includes Westchester, Rockland, Putnam, Nassau and Suffolk Counties in New York
and Greenwich and Byram in Connecticut), Poughkeepsie, Albany-Glens Falls,
Syracuse-Utica, Buffalo and Binghamton-Elmira. There are six LATAs served by New
England Telephone: Eastern Massachusetts, Western Massachusetts, Maine, New
Hampshire, Vermont and Rhode Island.
The following table sets forth for the Telephone Companies the approximate
number of network access lines in service at the end of each year:
Network Access Lines In Service
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(In Thousands)
1995 1994 1993 1992 1991
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New York Telephone . . . 10,795 10,477 10,135 9,897 9,735
New England Telephone . . 6,343 6,101 5,906 5,721 5,604
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Total . . . . . . . . 17,138 16,578 16,041 15,618 15,339
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The territories served by the Telephone Companies contain sizeable areas and
many localities in which local service is provided by nonaffiliated telephone
companies. Rochester, Jamestown, Middletown, Webster and Henrietta, New York are
the only cities with a population of more than 25,000 within the Telephone
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Companies' general operating area that are served by such nonaffiliated
companies. On December 31, 1995, these nonaffiliated companies had approximately
1,412,000 network access lines in service.
The Telephone Companies have consolidated all or part of many regional service
and support functions into Telesector Resources Group, Inc. ("Telesector
Resources") as part of the business restructuring plan (see Business
Restructuring below). Regional service functions are interstate access services,
operator services, public communications, sales, market area services, corporate
services, information services, labor relations, engineering/construction and
business planning. Support functions are quality and process re-engineering,
marketing, accounting, finance, data processing and related services, technology
and planning, public relations, legal and human resources. In addition,
Telesector Resources provides various procurement, procurement support and
materials management services to the Telephone Companies, on a nonexclusive
basis. These services include product evaluation, contracting, purchasing,
materials management and disposition, warehousing, transportation, and equipment
repair management. Under a reciprocal services agreement, the Telephone
Companies provide certain administrative and other services for Telesector
Resources.
Each of the seven RHCs formed in connection with the AT&T divestiture owns an
equal interest in Bell Communications Research, Inc. ("Bellcore"), which is held
by Telesector Resources. Bellcore furnishes to the LECs, including the Telephone
Companies, and certain of their subsidiaries, technical and support services
(that include research and development) relating to exchange telecommunications
and exchange access services that can be provided more efficiently on a
centralized basis. Bellcore serves as a central point of contact for
coordinating the efforts of NYNEX and the other RHCs in meeting the national
security and emergency preparedness requirements of the federal government. In
1995, it was announced that the seven RHCs, including NYNEX, have decided to
pursue the disposition of Bellcore. A final decision regarding the disposition
of their interests and the structure of such a transaction will be subject to
obtaining satisfactory financial and other terms and necessary approvals.
NYNEX Network Systems Company ("Network Systems") provides wireline and wireless
network services outside the United States. As managing sponsor of FLAG Limited,
Network Systems will construct a submarine cable system from the United Kingdom
to Japan.
NYNEX CableComms Group PLC and NYNEX CableComms Group Inc. (collectively,
"CableComms") provide cable television and telecommunications services in the
United Kingdom. CableComms is licensed to provide these services in sixteen
franchises covering approximately 2.7 million homes and 167,500 businesses.
WIRELESS COMMUNICATIONS
Effective July 1, 1995, NYNEX and Bell Atlantic Corporation ("Bell Atlantic")
completed the combination of substantially all of their domestic cellular
properties by contributing them to a partnership, Bell Atlantic NYNEX Mobile
cellular partnership ("BANM"), to own and operate these properties. The
combination represents the consummation of the transaction that was agreed to
and announced in June 1994. Bell Atlantic owns approximately 62.4% of BANM, and
NYNEX owns approximately 37.6%. The partnership is controlled
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jointly by NYNEX and Bell Atlantic. BANM, through its operating subsidiaries and
partnerships, provides a variety of wireless communications services and
products.
NYNEX's other wireless communications ventures include the following: a venture
between NYNEX, Bell Atlantic, AirTouch Communications Inc. and US WEST Inc.
which will provide national wireless personal communications services; an
investment in P.T. Excelcomindo Pratama, a newly formed Indonesian corporation
which holds a license to operate a nationwide cellular business in Indonesia;
and an investment in STET Hellas, a Greek cellular company which offers cellular
services.
The venture between NYNEX, Bell Atlantic, AirTouch Communications Inc. and US
WEST Inc. is comprised of two partnerships, one of which, PCS Primeco,
participated in the FCC auction of personal communications services ("PCS")
licenses and bid a total of approximately $1.1 billion for licenses in eleven
cities, of which NYNEX's portion was approximately $277 million. The bid was
paid upon grant of the licenses and final review of bidder qualifications by the
FCC in June 1995. In 1996, the venture plans to continue to build markets and
build out the network for prospective offering of services to customers.
DIRECTORY PUBLISHING
NYNEX Information Resources Company ("Information Resources") produces,
publishes and distributes alphabetical (White Pages) and classified (Yellow
Pages) directories for the Telephone Companies pursuant to agreements that
provide for the payment of fees to the Telephone Companies in exchange for the
right to publish such directories. Information Resources through subsidiaries
and in partnership with other entities, publishes other domestic and
international telephone directories (including Poland and the Czech Republic),
provides on-line electronic directories in the United States and France and
provides CD-ROM directories.
VIDEO ENTERTAINMENT AND INFORMATION SERVICES
NYNEX Entertainment & Information Services Company ("NEIS") licenses, acquires,
and packages entertainment, information and other services for distribution over
wireless and wireline networks in the NYNEX region. In addition, NEIS provides
coordination, support and oversight to NYNEX's video and information services
interests around the globe. NYNEX plans to introduce a branded,
price-competitive package of video and information services.
NEIS was instrumental in the formation of Tele-TV, NYNEX's national programming
and technology partnership with Bell Atlantic and Pacific Telesis Group formed
to develop programming and other products and services for transmission over
wireline and wireless networks, and NYNEX's investment with Bell Atlantic in CAI
Wireless, Inc., which controls spectrum for the transmission of wireless video
in key markets across the nation.
OTHER OPERATIONS
NYNEX Asset Management Company, a registered investment advisor, provides
investment management services to NYNEX's pension and other trust funds.
NYNEX Credit Company is primarily engaged in the business of financing
transportation, industrial, and commercial equipment and facilities to a
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broad range of companies through leasing transactions unrelated to NYNEX's other
businesses.
NYNEX Capital Funding Company provides a source of funding to NYNEX and its
subsidiaries, other than the Telephone Companies, through its ability to issue
debt securities in the United States, Europe and other international markets.
NYNEX Trade Finance Company evaluates and obtains non-recourse and trade-related
financing for NYNEX projects, evaluates and manages foreign currency risk and
arranges the repatriation of profits from foreign operations, principally in
developing and third-world economies.
BUSINESS RESTRUCTURING
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In 1993, NYNEX recorded $2.1 billion in pretax charges ($1.4 billion after-tax)
for business restructuring. These charges resulted from a comprehensive analysis
of operations and work processes, resulting in a strategy to redesign them to
improve efficiency and customer service, to adjust quickly to accelerating
change, to implement work force reductions, and to produce savings necessary for
NYNEX to operate in an increasingly competitive environment.
During 1994, NYNEX announced retirement incentives to provide a voluntary means
of implementing substantially all of the planned work force reductions of 16,800
employees. The retirement incentives were to be offered at different times
through 1996 according to local force requirements and were expected to generate
an estimated additional $2.0 billion in pretax charges ($1.3 billion after-tax)
over that period of time as employees elected to leave the business through
retirement incentives rather than through the severance provisions of the 1993
force reduction plan. Much of the cost of the incentives will be funded by
NYNEX's pension plans. In 1995 and 1994, NYNEX recorded $514.1 million ($326.8
million after-tax) and $693.5 million ($452.8 million after-tax), respectively,
of incremental charges for the cost of pension enhancements and associated
postretirement medical costs for approximately 4,700 and 7,200 employees,
respectively, who left NYNEX under the retirement incentives.
During 1995, it became evident that the number of management employees leaving
under the retirement incentives would exceed the original estimate due to
additional management staff reduction efforts. It was also determined that, due
to volume of business growth, the expected reduction in the number of
nonmanagement employees would be less and would not be fully realized until
1998.
At the present time, NYNEX expects the total number of employees who will elect
to take the pension enhancements to be in the range of 17,000 to 18,000,
consisting of approximately 7,000 management and 10,000 to 11,000
nonmanagement employees depending on work volumes, needs of the business, and
timing of the incentive offers.
NYNEX continues to monitor the estimated additional charges to be recorded and,
at December 31, 1995, still anticipates the additional charges to be in the
range of $2.0 billion ($1.3 billion after-tax), despite the increase in the
expected number of employees who will elect to take the incentive. This
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estimate is based on favorable actuarial experience for actual postretirement
medical costs, and favorable demographics of employees actually accepting the
offer, which have resulted in per capita charges being somewhat lower than
expected.
EXTRAORDINARY ITEM
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The discontinued application of Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation" ("Statement No.
71"), required NYNEX, for financial accounting purposes, to adjust the carrying
amount of telephone plant and equipment and to eliminate non-plant regulatory
assets and liabilities from the balance sheet. This change resulted in an
after-tax charge of $2.9 billion, consisting of $2.2 billion to adjust telephone
plant and equipment and $0.7 billion to write off non-plant regulatory assets
and liabilities. NYNEX now utilizes shorter asset lives for certain categories
of telephone plant and equipment than those previously approved by regulators.
The elimination of the amortization of net regulatory assets and the effects of
certain changes in accounting policies are not expected to have a significant
impact on financial results in future periods.
CAPITAL EXPENDITURES
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NYNEX meets the expanding needs for telecommunications services by making
capital expenditures to upgrade and extend the existing telecommunications
network, including new construction, optical fiber and modernization. Capital
expenditures also include the construction of mobile cell sites within the
Northeast and cell site digital upgrades through June 30, 1995, and the building
of the cable television and telecommunications network in the United Kingdom.
Capital expenditures exclude the equity component of allowance for funds used
during construction prior to the discontinuance of Statement No. 71, and
additions under capital leases. Capital expenditures for 1991 through 1995 are
set forth below:
In Millions
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1995. . . . . . . . . . $3,188
1994. . . . . . . . . . $3,012
1993. . . . . . . . . . $2,717
1992. . . . . . . . . . $2,450
1991. . . . . . . . . . $2,499
NYNEX's capital expenditures in 1996 are currently expected to be at a level
comparable to 1995 expenditures. Most of such expenditures will be for the
Telephone Companies, Telesector Resources and CableComms.
STATE REGULATORY
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MAINE
In May 1995, the Maine Public Utilities Commission ("MPUC") adopted a five-year
price cap plan for New England Telephone, with the provision for a five-year
extension after review by the MPUC. Overall average prices and specific rate
elements for most services are limited by a price cap formula of inflation minus
a productivity factor plus or minus certain exogenous cost changes. There is no
restriction on New England Telephone's earnings.
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New England Telephone is to make its first annual price cap filing on December
1, 1996. The MPUC also established a service quality index with penalties in the
form of customer rebates to apply if service quality categories are missed.
Penalties are subject to annual limits of $1 million per category and $10
million overall.
In a related earnings investigation, the MPUC ordered a one-time customer credit
of $2.8 million and ordered that New England Telephone's revenues be reduced by
$14.4 million annually. Pursuant to that order, in January 1996, the MPUC
approved, with certain modifications, New England Telephone's proposal to use up
to $4 million of the reduction to provide new services to Maine libraries and
schools.
The May 1995 Orders of the MPUC were appealed to the Maine Supreme Judicial
Court. The appellants contended that the MPUC should have ordered greater rate
reductions by New England Telephone and challenged the MPUC's authority to apply
$4 million to the provision of services to libraries and schools. A decision was
issued by the Court on March 15, 1996, rejecting the appeal and affirming the
MPUC's Orders.
MASSACHUSETTS
In May 1995, the Massachusetts Department of Public Utilities ("MDPU") approved
a price regulation plan to govern New England Telephone's Massachusetts
intrastate operations through August 2001, with no restriction on earnings.
Certain residence exchange rates are capped. Pricing rules limit New England
Telephone's ability to increase prices for most services, including a ceiling on
the weighted average price of all tariffed services based on a formula of
inflation minus a productivity factor plus or minus certain exogenous changes.
The MPDU also established a quality of service index and tied service quality to
the level of the productivity factor. New England Telephone's inability to meet
the performance levels in any given month would result in an increase in the
productivity offset by one-twelfth of one percent for purposes of the annual
price cap filing. New England Telephone's initial price cap filing became
effective in September 1995. Rate changes in the filing, which result in an
annual reduction of approximately $32.8 million, relate to switched access
services, residence optional calling plans, business local usage, and conduit
attachment fees. An additional reduction of $5.3 million, associated with a
monthly increase of $2.50 in the LifeLine Service credit, took effect in June
1995, as directed by the MDPU's Order.
The MDPU's Order has been appealed to the Supreme Judicial Court of
Massachusetts by AT&T Communications of New England, MCI Telecommunications
Corporation ("MCI") and New England Cable Television Association, and New
England Telephone has intervened in each of the proceedings.
In July 1995, hearings commenced in the MDPU's investigation concerning
intraLATA and local exchange competition in Massachusetts. The MDPU has
indicated that among the matters it intends to address are collocation,
interconnection of networks, intraLATA toll presubscription, telephone number
assignment and portability and universal service funding. Decisions in this
proceeding could have a negative effect on New England Telephone's revenues.
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NEW YORK
INCENTIVE PLAN
In August 1995, the New York State Public Service Commission ("NYSPSC") approved
with modifications a Plan that changes the manner in which New York Telephone
will be regulated by the NYSPSC over the next five to seven years. The Plan is a
performance-based plan that replaces rate of return regulation with a form of
price regulation and incentives to improve service and does not restrict New
York Telephone's earnings. Prices are capped at current rates for "basic"
services such as residence and business exchange access, residence and business
local calling and LifeLine service, and price reduction commitments are
established for a number of services, including toll and intraLATA carrier
access services. Certain prices may be adjusted annually based on an inflation
index and costs associated with NYSPSC mandates and other defined "exogenous"
events. Depending on whether the Plan remains in effect for five or seven years,
New York Telephone's prices will have been decreased by an amount that, based on
current volumes of business, would produce an aggregate revenue reduction over
the term of the plan of $1.1 billion at the end of five years, or $1.9 billion
at the end of seven years.
The Plan also establishes service quality targets with stringent rebate
provisions if New York Telephone is unable to meet some or all of the targets,
and sets an accelerated schedule for the provision of intraLATA presubscription
("ILP"). New York Telephone's compliance tariffs under the Plan became effective
on a temporary basis as of September 1, 1995, and will remain temporary pending
the NYSPSC Staff's review and investigation.
In December 1995, the NYSPSC rejected various petitions that had been filed for
reconsideration of the order approving the Plan and indicated that it had
approved a Staff plan for monitoring New York Telephone's compliance. In
December 1995, MCI commenced a proceeding in the New York Supreme Court seeking
to overturn the NYSPSC's orders with respect to the Plan. MCI asserts as
unlawful, among other things, the lack of an earnings cap in the Plan and the
establishment of the $153 million set-aside and the provision for its subsequent
release to New York Telephone. Both the NYSPSC and New York Telephone were named
as parties. New York Telephone filed its answer to MCI's petition in February
1996.
COMPETITION II PROCEEDING
In September 1995, the NYSPSC issued an order resolving certain issues in its
proceeding on local exchange competition in New York State. New York Telephone
must provide White Pages directory listings at no charge to customers of
competitive local exchange carriers ("CLECs"), but may negotiate fees with CLECs
for delivery of the directories to their customers. The NYSPSC also established
a reciprocal compensation scheme for the payment of access rates when New York
Telephone and CLECs terminate traffic on each other's networks. In general, the
NYSPSC's plan permits "full-service, facilities-based" local exchange carriers
to pay a lower rate than other carriers will be required to pay. The NYSPSC also
determined that New York Telephone must, upon request, provide services to
interconnect CLECs that are collocated in New York Telephone's central offices.
Finally, the NYSPSC directed CLECs to provide ILP.
In December 1995, MCI commenced a proceeding in the New York Supreme Court
challenging the NYSPSC's reciprocal compensation scheme for interconnection
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between carriers. New York Telephone intervened in the proceeding and filed an
answer to MCI's petition in January 1996.
In December 1995, the NYSPSC issued orders resolving various procedural and
operational issues related to ILP. The NYSPSC approved New York Telephone's
proposal to implement ILP for analog central offices as those switches are
replaced by digital equipment. By the end of February 1996, New York Telephone
had implemented ILP in all of its digital switching systems.
OTHER
Effective January 1991, the NYSPSC authorized a $250 million increase in New
York Telephone's rates, of which $47.5 million annually remains subject to
refund pending resolution of certain issues relating to transactions in the
years 1984 through 1990 between New York Telephone and other NYNEX affiliates.
In September 1995, the NYSPSC's independent consultant concluded its final
report detailing findings and recommendations, and an NYSPSC administrative law
judge issued a procedural ruling for future hearings and the filing of evidence.
In January 1996, New York Telephone filed notice with the NYSPSC of its
intention to open settlement discussions in this case and requested an extension
of the date for the filing of testimony.
Pursuant to a 1993 NYSPSC order, New York Telephone may retain a portion of 1993
earnings above an 11.7% return on equity, depending on its attainment of
specified service quality criteria, with earnings above 12.7% return on equity
to be held for the ratepayers' benefit. New York Telephone has submitted a
report to the NYSPSC showing 1993 earnings below 11.7%.
In November 1995, the NYSPSC directed New York Telephone to file tariffs to
remove restrictions on the resale of residential services, effective February
1996, or to show cause why such restrictions should not be removed. In January
1996, following New York Telephone's show-cause response requesting more time
for implementation, the NYSPSC issued an order requiring implementation, with
respect to both residential and business services, in October 1996.
NEW HAMPSHIRE
In June 1995, the New Hampshire Public Utilities Commission approved New England
Telephone's proposed toll rate reduction targeted at small and medium volume
usage customers, effective July 1995. The annual revenue effect of the toll rate
reduction is estimated to be approximately $6.8 million.
RHODE ISLAND
In January 1996, New England Telephone and the Rhode Island Division of Public
Utilities and Carriers filed with the Rhode Island Public Utilities Commission
("RIPUC") a proposed five-year price regulation plan to succeed the price
regulation trial that expired in December 1995. The proposed plan provides for
no restrictions on New England Telephone's earnings. Pricing rules would limit
New England Telephone's ability to increase prices for most services based on a
formula of inflation minus a productivity offset, plus or minus exogenous
changes. In addition, a quality of service index is tied to the formula as an
additional, one-time offset. New England Telephone's inability to meet the
performance levels in any given month would result in an increase in the offset
by one-twenty fourth of one percent for purposes of the next annual price cap
filing. The proposed plan will be reviewed by the RIPUC in hearings
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to be scheduled, with a decision expected in the second quarter of 1996.
As part of the proposed plan, New England Telephone has agreed to introduce a
new Statewide Calling Plan option for residence customers which would: allow
unlimited toll calling within the state for a flat price of $25 per month;
reduce local usage prices by $1 million; and continue the Internet trial for
schools and libraries begun under the previous price regulation trial, with
additional funding. The annual revenue effect of these three efforts is
estimated to be a reduction of approximately $4 million.
In June 1995, the RIPUC issued an initial order in the competition proceeding,
expressing an overall policy favoring local competition, asserting jurisdiction
over potential local competitors and requiring seamless interconnection of
networks. In December 1995, the RIPUC issued a revised schedule for testimony,
discovery, and hearings in the next phase of the proceeding, with a final order
proposed to be issued by July 1996. Among the issues being addressed in this
proceeding are interconnection of networks, unbundling, telephone number
portability, intraLATA toll presubscription, and universal service funding.
VERMONT
In September 1995, New England Telephone filed a rate case seeking an annual
increase in rates of $12.2 million. In February 1996, the Vermont Public Service
Board ("VPSB") approved a stipulation filed by New England Telephone and the
Vermont Department of Public Service, which will result in an annual increase in
rates of $7.5 million, effective March 1996. As a result of the VPSB's approval
of the stipulation, New England Telephone intends to withdraw its appeal of the
VPSB's orders in the price regulation and earnings dockets.
In December 1995, a proposed decision was issued by the hearing officer in Phase
I of the VPSB's proceeding on competition, which would direct New England
Telephone to unbundle certain elements of its network, allow further unbundling
upon a showing by the requesting party that unbundling is technically feasible
and that demand exists, and set pricing rules for wholesale and retail services
and interconnection. The VPSB is expected to rule on the proposed decision by
April 1996. Phase II of the proceeding will address specific pricing and
technical questions with respect to local service and intraLATA toll
competition, including ILP and interconnection. A decision in Phase II is
expected in late 1996.
FEDERAL REGULATORY
- ------------------
PRICE CAP PLAN
The Telephone Companies are subject to incentive regulation in the form of price
caps. Price cap limits are subject to adjustment each year to reflect inflation,
a productivity factor and certain other cost changes.
Revised tariffs under the price cap rules reduced interstate access rates by
approximately $90 million in the 1993-1994 tariff period and $9.4 million in the
1994-1995 tariff period. In August 1995, the Telephone Companies implemented the
annual update to the price cap rates, which will result in a net reduction in
interstate access rates of approximately $75.0 million by June 1996. The annual
update included tariff revisions to recover approximately $21 million of
exogenous costs resulting from the implementation
12
<PAGE>
of Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." Collection of these revenues
is subject to possible refund pending resolution of the FCC's Common Carrier
Bureau investigation.
In 1995, the FCC announced interim changes in the price cap rules, under which
each LEC will choose one of three productivity factor offsets to be used in
setting its price cap index. LECs adopting the highest productivity factor will
retain all interstate earnings. The two other options entail sharing of earnings
and will allow a maximum interstate return on investment of either 14.25% or
12.75%.
The FCC also determined that the 3.3% productivity factor adopted in 1991 and
used since then by most LECs, including the Telephone Companies, was
understated. Accordingly, the FCC required each such LEC to make up front
reductions to "reinitialize" its price cap index. The FCC also revised the
criteria for including exogenous cost changes and, as a result, each LEC will be
required to recalculate its price cap index on a prospective basis to exclude
cost increases due to changes in the accounting treatment of other
postemployment benefit expenses. Finally, the FCC gave the LECs additional
pricing flexibility in certain service categories.
In 1995, the FCC issued a Notice of Proposed Rulemaking regarding the
productivity factor used by LECs in the FCC price cap formula. The Proposed
Rulemaking will consider changes in the determination of the productivity
factor, the recognition of exogenous costs, the extent of carrier sharing, and
the formula for calculating the price cap index for certain services. The FCC
expects to issue an order in time for the final changes to be reflected in LECs'
rates as of July 1996. The FCC has also issued a Notice of Proposed Rulemaking
to determine how the price cap rules should be modified to accommodate
increasing levels of competition. The FCC asked for comments on a proposal by
the Telephone Companies that earnings sharing be reduced or eliminated as an LEC
implements measures to promote competition for local exchange services. The FCC
has indicated that it intends to establish a rulemaking proceeding in 1996 to
consider reform of the rules concerning the structure of access charges. This
rulemaking proceeding would consider changes that might be necessary as
competition increases in the local telephone market.
OTHER FEDERAL REGULATORY
In January 1996, the FCC issued a Notice of Proposed Rulemaking addressing the
charges made for interconnection between LECs and wireless carriers. Currently,
such charges are established by contracts under the jurisdiction of the state
regulatory commissions. The FCC requested comment on its tentative conclusion to
require, pending the conclusion of its Proposed Rulemaking, reciprocal
"bill-and-keep" compensation arrangements under which the originating carrier
would no longer pay the terminating carrier for access. Adoption of the proposed
procedure would have a negative effect on the revenues of the LECs, including
the Telephone Companies. The Telephone Companies plan to participate actively in
the proceeding.
During 1996, the FCC will conduct a number of rulemaking proceedings in order to
implement the Telecommunications Legislation enacted in February 1996.
13
<PAGE>
In February 1996, New England Telephone advised the FCC that it relinquished
authorization to construct advanced video dialtone network facilities in
portions of Massachusetts and Rhode Island.
In December 1995, MFS Communications ("MFS") filed a petition with the FCC for a
declaratory ruling that LECs must provide central office collocation with
respect to all interstate access services, upon bona fide request. In its
petition, MFS cites the Telephone Companies for refusal to provide
interconnection to certain services in central offices where MFS is collocated.
The Telephone Companies filed comments in which they argued that the FCC's
current rules do not require expanded interconnection to the services described
in MFS' petition and that the relief sought by MFS would require the FCC to
issue a new rule.
In October 1995, the U.S. Court of Appeals for the District of Columbia Circuit
denied the Telephone Companies' petition for rehearing on its decision that the
FCC had understated the amount of damages to be paid in connection with
overearnings complaints for the periods 1987-1988 and 1989-1990. In February
1996, the Telephone Companies joined other parties in petitioning the U.S.
Supreme Court for review of the Court of Appeals decision. It is probable that
the Telephone Companies will be required to pay damages plus interest, which
were accrued in 1995. For the period 1987-1988 the amounts for New England
Telephone and New York Telephone are approximately $7.4 million and $5.4
million, respectively. For the period 1989-1990, New York Telephone will be
required to pay approximately $9.7 million.
In March 1995, the FCC released Orders to Show Cause to each of the LECs,
including the Telephone Companies, resulting from an audit of the costs that the
LECs reported to the National Exchange Carrier Association ("NECA") for Common
Line Pooling purposes for 1988 and the first quarter of 1989. The audit report
cites each of the LECs for alleged violations of the FCC's accounting rules and
reporting errors which, as to the Telephone Companies, were calculated to total
$37.8 million in respect of all interstate costs for the period. Some of the
alleged errors would have had the effect of understating the Telephone
Companies' revenue requirement; the net effect was an alleged revenue
requirement overstatement of $19.8 million. That estimate is considered
preliminary, however, because the auditors did not have sufficient information
for several items to reach final conclusions. The Order required the Telephone
Companies to show cause why the FCC should not: (1) issue a Notice of Apparent
Liability for Forfeiture for violations of the FCC's accounting rules; (2)
require the Telephone Companies to adjust their price cap index; and (3) require
the Telephone Companies to improve their internal processes to bring them into
compliance. The Telephone Companies filed responses in May and September 1995,
demonstrating that forfeitures should not be imposed, that ratepayers were not
harmed by the alleged violations, and that internal processes have already been
improved.
COMPETITION
- -----------
NYNEX believes that, while it will face significantly increased risks in its
traditional markets, there will be significant opportunities in its many new
markets.
14
<PAGE>
Federal and state regulators continue to adopt policies favoring competition and
have initiated various proceedings to further those policies. Those policies
will be advanced by the enactment of the Telecommunications Act of 1996, which
immediately opens NYNEX's local telecommunications markets to full competition.
An increasing number of national and global companies with substantial capital
and marketing resources are expected to enter many of NYNEX's local markets. At
the same time, the Act frees NYNEX to enter the long distance, video
entertainment and information markets. NYNEX is granted immediate relief for
long distance calling (both U.S. and international) originating outside of the
NYNEX region, as well as for long distance services incidental to wireless,
video and information services, and for video programming. In order to provide
interLATA long distance service for calls originating within its region, NYNEX
must: (a) satisfy a "checklist" of technical and regulatory requirements with
respect to interconnection and unbundling of services; (b) provide
interconnection to a facilities-based competitor for business and residential
service, unless no such request is made; and (c) obtain an FCC public interest
determination.
Most of the services that NYNEX provides in its local telecommunications markets
have been facing increasing competition for the past several years. NYNEX has
responded by obtaining increased pricing flexibility under incentive regulation,
introducing new services, and improving service quality. Increases in 1995
Private Line/Special Access revenues, and the number of Centrex "win-backs" from
PBX vendors indicate NYNEX's ability to respond effectively in its most
competitive markets.
Competition for intraLATA toll revenues has intensified, beginning in 1994 with
the increased marketing of "dial-around" programs by interexchange carriers.
However, to date, the "retail" toll revenues NYNEX has lost to such programs are
being offset in part by increased revenues from wholesale access charges. ILP
began in New York in late 1995 and was completed in February 1996. Future
wholesale pricing is the subject of pending regulatory proceedings.
In the highly competitive interstate access market, NYNEX received a waiver from
the FCC in 1995, to de-average switched access rates in the metropolitan New
York LATA and introduce a new fixed monthly charge paid directly by
interexchange carriers. This has enabled NYNEX to charge prices that more
accurately reflect the market conditions in its most competitive area.
NYNEX considers itself well positioned to enter the in-region long distance
business quickly, as in New York and Massachusetts it already meets many of the
requirements of this competitive "checklist". NYNEX provides for physical
collocation of competitors' facilities and has signed interconnection agreements
which include number portability and reciprocal compensation for terminating
traffic with local exchange competitors. NYNEX has also unbundled many
components of its network and offers them on a wholesale basis, and completed
ILP in New York in February 1996.
RESEARCH AND DEVELOPMENT
- ------------------------
Research and development is primarily conducted at NYNEX Science & Technology,
Inc.("Science & Technology"), which was formed in June 1991 to continue the
activities previously performed within a department of NYNEX. Science &
Technology
15
<PAGE>
provides NYNEX with technical direction and support that is essential in
developing new services, improving current services and increasing operational
efficiencies. It focuses on the development of advanced communications,
information and network products and services using leading edge technology.
Another NYNEX business unit, Telesector Resources, performs market research,
product development and field trials associated with new services NYNEX plans to
introduce. Bellcore conducts research and development in areas relating
primarily to exchange telecommunications and exchange access services. Research
and development costs charged to expense were approximately $279.1, $159.7, and
$162.8 million in 1995, 1994 and 1993, respectively.
EMPLOYEE RELATIONS
- ------------------
NYNEX and its subsidiaries had approximately 65,800 employees at December 31,
1995. Approximately 47,600 employees are represented by unions, of which
approximately 70% are represented by the Communications Workers of America
("CWA") and approximately 30% by the International Brotherhood of Electrical
Workers ("IBEW"), both of which are affiliated with the AFL-CIO.
In 1994, agreements were ratified with the CWA and the IBEW to extend the
collective bargaining agreements through August 8, 1998. The wage rates
increased 4.0% in August 1994 and 1995 and will increase 3.5% and 3.0% in August
1996 and 1997, respectively. In 1997, there may also be a cost-of-living
adjustment. The agreements also provide for retirement incentives, a commitment
to no layoffs or loss of wages as a result of company-initiated "process
change", an enhanced educational program, stock grants and other incentives to
improve service quality.
ITEM 2. PROPERTIES.
The properties of NYNEX and its subsidiaries do not lend themselves to simple
description by character and location of principal units.
At December 31, 1995, the gross book value of property, plant and equipment was
$35.7 billion, consisting principally of telephone plant and equipment (84%).
Other classifications include: land, land improvements and buildings (9%);
furniture and other equipment (4%); and plant under construction and other (3%).
Substantially all of the Telephone Companies' central office equipment is
located in buildings owned by the Telephone Companies and is situated on land
that they own. Many administrative offices of NYNEX and the Telephone Companies,
as well as many garages and business offices of the Telephone Companies, are in
rented quarters.
Substantially all of New York Telephone's assets are subject to lien under New
York Telephone's Refunding Mortgage Bond indenture. At December 31, 1995, the
principal amount of Refunding Mortgage Bonds outstanding was $1.10 billion.
As part of NYNEX's 1993 restructuring associated with re-engineering the way
service is delivered to customers (see Business Restructuring above), NYNEX
intends to consolidate work centers by the end of 1996 to build larger work
16
<PAGE>
teams in fewer locations. At December 31, 1995, the majority of the planned work
centers were completed.
ITEM 3. LEGAL PROCEEDINGS.
There were no proceedings reportable under Item 3.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders in the fourth quarter of
the fiscal year covered by this Annual Report on Form 10-K.
- --------------------------------------------------------------------------------
17
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF MARCH 1, 1996)
- ----------------------------------------------------------
For each of the executive officers of NYNEX, set forth below is the name, age,
position and date each person initially became an executive officer:
Name Age Position Date
---- --- -------- ----
Ivan G. Seidenberg 49 Chairman of the Board and
Chief Executive Officer March 1986
Frederic V. Salerno 52 Vice Chairman-Finance and
Business Development March 1991
Alan Z. Senter 54 Executive Vice President and
Chief Financial Officer September 1994
Morrison DeS. Webb 48 Executive Vice President,
General Counsel and Secretary May 1994
Richard A. Jalkut 51 President and Group Executive-
NYNEX Telecommunications January 1995
Richard Blackburn 53 President and Group Executive-
NYNEX Worldwide Communications
and Media Group January 1995
Donald B. Reed 51 President and Group Executive-
NYNEX External Affairs and
Corporate Communications January 1995
Arnold J. Eckelman 52 Executive Vice President and
Group Executive-Quality Assurance
and Operations Support February 1995
Robert T. Anderson 49 Vice President-Business
Development and President-NYNEX
Network Services February 1995
Jeffrey A. Bowden 49 Vice President-Strategy &
Corporate Assurance September 1994
Peter M. Ciccone 53 Vice President and Comptroller June 1992
John M. Clarke 54 Vice President-Law May 1994
Saul Fisher 52 Vice President-Law March 1993
Patrick F. X. Mulhearn 44 Vice President-Public Relations January 1994
Donald J. Sacco 54 Vice President-Human Resources May 1990
Thomas J. Tauke 45 Vice President-Government
Affairs September 1991
Colson P. Turner 53 Vice President and Treasurer July 1991
Prior to their election as executive officers of NYNEX, all of such officers
except Mr. Senter, Mr. Bowden and Mr. Tauke had held, for at least the past five
years, high level managerial positions with NYNEX or a subsidiary of NYNEX.
Officers are not elected for a fixed term of office, but serve at the discretion
of the Board of Directors.
Alan Z. Senter was elected Executive Vice President and Chief Financial Officer
of NYNEX effective September 1, 1994. Prior to joining NYNEX, Mr. Senter was
Chief Executive Officer of Senter Associates, a financial consulting services
business from November 1993 to September 1994. From 1992 to 1993, Mr. Senter
held the position of Executive Vice President and Chief Financial Officer and
was a member of the Board of Directors. From 1990 to 1992, Mr. Senter held the
position of Vice President-Finance at Xerox. Mr. Senter is a member of the Board
of Directors of XL Insurance Company.
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<PAGE>
Jeffrey A. Bowden was elected Vice President-Strategy & Corporate Assurance of
NYNEX, effective September 1, 1994. Prior to joining NYNEX, Mr. Bowden held the
position of Vice President and Director at The Boston Consulting Group from 1988
to 1994, where he founded and directed the telecommunications practice.
Thomas J. Tauke was elected Vice President-Government Affairs of NYNEX,
effective September 1, 1991. Prior to joining NYNEX, he was founder and senior
partner of Tauke, Walgren and Associates, a public policy consulting firm
specializing in telecommunications, health, environmental and energy issues. Mr.
Tauke was also president and chief executive officer of Home Technology Systems,
Inc., a small business specializing in personal emergency systems. From January
1979 to January 1991, Mr. Tauke represented Iowa's Second Congressional District
in the United States House of Representatives. He is a member of the Board of
Directors of the United States Telephone Association and Chairman of the
Washington Center for Internships and Academic Seminars.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Information with respect to quarterly dividends and Common Stock prices
appearing on page 50 of the Registrant's 1995 Annual Report to Stockholders;
information with respect to Common Stock exchange listings appearing on the back
cover of such Annual Report under the caption "Stock Exchange Listings"; and
information with respect to the number of stockholders of record of Common Stock
appearing on page 30 of such Annual Report are incorporated herein by reference.
During 1995, NYNEX issued approximately 7.1 million shares of Common Stock for
the NYNEX Share Owner Dividend Reinvestment and Stock Purchase Plan ("DRISPP"),
the NYNEX Corporation Savings Plan for Salaried Employees and the NYNEX
Corporation Savings and Security Plan (Non-Salaried Employees) ("Savings
Plans"), and other stock incentive programs. For the NYNEX 1992 Management Stock
Option Plan and the NYNEX 1992 Non-Management Stock Option Plan, NYNEX has
repurchased and placed in treasury stock approximately one million shares of
Common Stock. NYNEX continues to buy stock as needed for the continuous exercise
of the stock options. Upon exercise of the stock options, these repurchased
shares will be released into the open market.
On March 21, 1996, the Board of Directors of NYNEX announced a quarterly cash
dividend of $.59 per share of Common Stock, which was unchanged from the
previous quarter. The dividend is payable on May 1, 1996, to stockholders of
record at the close of business on April 10, 1996.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for the five years ended December 31, 1995, appearing on
page 25 of the Registrant's 1995 Annual Report to Stockholders, is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, appearing on pages 10 through 25 of the Registrant's 1995 Annual
Report to Stockholders, is incorporated herein by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Registrant and its wholly-owned
subsidiaries, appearing on pages 28 through 50 of the Registrant's 1995 Annual
Report to Stockholders, are incorporated herein by reference and are listed in
Item 14 below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During 1995 and 1994, NYNEX did not change its auditors.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information regarding Executive Officers of the Registrant required by Item 401
of Regulation S-K is included in Part I of this Annual Report on Form 10-K
following Item 4.
Other information required under Items 10, 11, and 12 is included in the
Registrant's Proxy Statement dated March 18, 1996, on pages 53 (commencing under
the caption "Security Ownership of Certain Beneficial Holders and Management")
through 57, and pages 63 (commencing under the caption "Committee on Benefits
Report on Executive Compensation") through the top of page 72. Such information
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There existed no relationship and there were no transactions reportable under
Item 13.
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K.
(a) Documents filed as part of this Annual Report on Form 10-K.
-----------------------------------------------------------
(1) Consolidated Financial Statements. The following report and
----------------------------------
consolidated financial statements, included in the Registrant's
1995 Annual Report to Stockholders, are incorporated herein by
reference in response to Item 8:
Page(s)
in Registrant's
1995 Annual Report
to Stockholders
Report of Independent Accountants ............. 26
Consolidated Statements of Income for each
of the Three Years in the Period Ended
December 31, 1995 ........................... 28
Consolidated Balance Sheets as of
December 31, 1995 and 1994 .................. 29
Consolidated Statements of Changes in
Stockholders' Equity for each of the Three
Years in the Period Ended December 31, 1995 . 30
Consolidated Statements of Cash Flows for each
of the Three Years in the Period Ended
December 31, 1995 ........................... 31
Notes to Consolidated Financial Statements .... 32
Supplementary Information
Quarterly Financial Data (Unaudited) ........ 50
(2) Consolidated Financial Statement Schedule. The following
------------------------------------------
consolidated financial statement schedule of the Registrant
is included herein in response to Item 14:
Page(s) in this
Annual Report on
Form 10-K
Report of Independent Accountants ............ 29
II - Valuation and Qualifying Accounts 30
Consolidated financial statement schedules other than that listed
above have been omitted because the required information is
contained in the consolidated financial statements and notes
thereto or because such schedules are not required or applicable.
22
<PAGE>
(3) Exhibits. Exhibits on file with the Securities and Exchange
---------
Commission (the "SEC"), as identified in parentheses below, are
incorporated herein by reference as exhibits hereto.
Exhibit
Number
(3)a Restated Certificate of Incorporation of NYNEX Corporation
("NYNEX") dated May 6, 1987 (Exhibit No. (3)a to the
Registrant's filing on Form SE dated March 24, 1988, File No.
1-8608).
(3)b By-Laws of NYNEX dated October 12, 1983, as amended October
17, 1991 (Exhibit No. (3)b to the Registrant's filing on Form
10-Q dated October 31, 1991, File No. 1-8608).
(4) No instrument which defines the rights of holders of long-term
debt of NYNEX and its subsidiaries is filed herewith pursuant
to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, NYNEX hereby agrees to furnish a copy of any such
instrument to the SEC upon request.
(10)(ii)1 Preferred Stock Purchase Agreement between NYNEX and Viacom
Inc., dated October 4, 1993, and amendment thereto dated
November 19, 1993. (Exhibit 10(ii)(2) to the Registrant's 1993
Annual Report on Form 10-K, File No. 1-8608).
(10)(ii)2 Joint Venture Formation Agreement dated as of June 29, 1994
between NYNEX and Bell Atlantic (Exhibit 10 to the
Registrant's filing on Form 10-Q dated June 30, 1994, File No.
1-8608).
(10)(ii)3 Agreement of Limited Partnership of Tomcom, L.P., dated as of
October 20, 1994, by and between WMC Partners, L.P. (a
Delaware limited partnership wholly owned by AirTouch
Communications and U S WEST, Inc.) and Cellco Partnership (a
Delaware general partnership wholly owned by affiliates of
NYNEX and Bell Atlantic Corporation).
(10)(ii)4 Agreement of Limited Partnership of PCS Primeco, L.P., dated
as of October 20, 1994, by and between PCS Nucleus, L.P. (a
Delaware limited partnership wholly owned by AirTouch
Communications and U S WEST, Inc.) and PCSCO Partnership (a
Delaware general partnership wholly owned by affiliates of
NYNEX and Bell Atlantic Corporation).
(10)(iii)1 NYNEX Senior Management Short Term Incentive Plan (Exhibit No.
10-aa to Registration Statement No. 2-87850).
(10)(iii)2 NYNEX Senior Management Long Term Disability and Survivor
Protection Plan (Exhibit No. 10-dd to Registration Statement
No. 2-87850).
23
<PAGE>
Exhibit
Number
(10)(iii)3 NYNEX Senior Management Transfer Program (Exhibit No. 10-ee to
Registration Statement No. 2-87850).
(10)(iii)4 Description of NYNEX Financial Counseling Service for Senior
Managers (Exhibit No. 10-ff to Registration Statement No.
2-87850).
(10)(iii)5 NYNEX Deferred Compensation Plan for Non-Employee Directors
(Exhibit No. 10-gg to Registration Statement No. 2-87850).
(10)(iii)6 Description of NYNEX Insurance Plan for Directors (Exhibit No.
10-hh to Registration Statement No. 2-87850).
(10)(iii)7 Description of NYNEX Plan for Non-Employee Directors' Travel
Accident Insurance (Exhibit No. 10-ii to Registration
Statement No. 2-87850).
(10)(iii)8 NYNEX Senior Management Incentive Award Deferral Plan (Exhibit
No. 10-kk to Registration Statement No. 2-87850).
(a) Description of certain amendments to the NYNEX Senior
Management Incentive Award Deferral Plan.
(10)(iii)9 Description of NYNEX Mid-Career Hire Program (Exhibit No.
10-ll to Registration Statement No. 2-87850).
(10)(iii)10 NYNEX Mid-Career Pension Program (Exhibit No. 10-mm to
Registration Statement No. 2-87850).
(10)(iii)11 NYNEX Estate Planning Legal Services Program (Exhibit No.
10-nn to Registration Statement No. 2-87850).
(10)(iii)12 NYNEX 1984 Stock Option Plan, as amended and restated
(Post-Effective Amendment No. 1 to Registration No. 2-97813,
dated September 21, 1987).
(10)(iii)13 NYNEX Senior Management Long Term Incentive Plan (Exhibit No.
(19)(ii)1 to the Registrant's 1984 Annual Report on Form 10-K,
File No. 1-8608).
(a) Description of certain amendments to the NYNEX Senior
Management Long Term Incentive Plan (Exhibit No. (19)(ii)4 to
the Registrant's Filing on Form SE dated March 27, 1987, File
No. 1-8608).
(b) Description of certain amendments to the NYNEX Senior
Management Long Term Incentive Plan (Exhibit No. (19)(ii)1 to
the Registrant's Filing on Form SE dated March 23, 1993, File
No. 1-8608).
24
<PAGE>
Exhibit
Number
(10)(iii)14 NYNEX Senior Management Non-Qualified Pension Plan (Exhibit No.
(19)(ii)2 to the Registrant's 1984 Annual Report on Form 10-K,
File No. 1-8608).
(a) Description of certain amendments to the NYNEX Senior
Management Non-Qualified Pension Plan (Exhibit No. (19)(ii)6
to the Registrant's Filing on Form SE dated March 27, 1987,
File No. 1-8608).
(b) Description of certain amendments to the NYNEX
Non-Qualified Pension Plan (Exhibit No. (19)(ii)7 to the
Registrant's Filing on Form SE dated March 27, 1987, File No.
1-8608).
(c) Description of certain amendments to the NYNEX Senior
Management Non-Qualified Pension Plan (Exhibit No.(19)(ii)1 to
the Registrant's 1987 Annual Report on Form 10-K, File No.
1-8608).
(d) Description of certain amendments to the NYNEX Senior
Management Non-Qualified Pension Plan (Exhibit No. (19)(ii)l
to the Registrant's 1991 Annual Report on Form 10-K, File No.
1-8608).
(e) Description of certain amendments to the NYNEX Senior
Management Non-Qualified Pension Plan (Exhibit No. (19)(ii)2
to the Registrant's filing on Form SE, dated March 23, 1993,
File No. 1-8608).
(f) Description of certain amendments to the NYNEX Senior
Management Non-Qualified Pension Plan.
(10)(iii)15 Description of NYNEX Non-Employee Director Pension Plan
(Exhibit No. (28)(i)1 to Amendment No. 1 to the Registrant's
1987 Annual Report on Form 10-K, File No. 1-8608).
(10)(iii)16 NYNEX Senior Management Non-Qualified Supplemental Savings
Plan (Exhibit No. (10)(iii)(A)(18) to the Registrant's 1988
Annual Report on Form 10-K, File No. 1-8608).
(a) Description of certain amendments to the NYNEX Senior
Management Non-Qualified Supplemental Savings Plan.
(10)(iii)17 NYNEX 1987 Restricted Stock Award Plan (Exhibit No. (28)(i)1
to the Registrant's Filing on Form SE dated March 23, 1988,
File No. 1-8608).
(10)(iii)18 NYNEX 1990 Long Term Incentive Program (Exhibit No. 1 to the
Registrant's Proxy Statement dated March 26, 1990, File No.
1-8608).
25
<PAGE>
Exhibit
Number
(10)(iii)19 NYNEX 1990 Stock Option Plan (Exhibit No. 2 to the
Registrant's Proxy Statement dated March 26, 1990, File No.
1-8608).
(10)(iii)20 NYNEX Stock Plan for Non-Employee Directors (Exhibit No. (10)
(iii)(A)22 to the Registrant's 1990 Annual Report on Form
10-K, File No. 1-8608).
(10)(iii)21 Description of the NYNEX Supplemental Life Insurance Plan
(Exhibit No. (19)(i)2 to the Registrant's filing on Form SE,
dated March 23, 1993, File No. 1-8608).
(10)(iii)22 NYNEX Executive Retention Agreement (Exhibit No. (10)(ii)(A)24
to the Registrant's 1993 Annual Report on Form 10-K, File No.
1-8608).
(10)(iii)23 NYNEX Executive Severance Pay Plan (Exhibit No. (10)(ii)(A)25
to the Registrant's 1993 Annual Report on Form 10-K, File No.
1-8608).
(10)(iii)24 NYNEX 1995 Long Term Incentive Program (Exhibit No. 1 to the
Registrant's Proxy Statement dated March 21, 1994, File No.
1-8608).
(10)(iii)25 NYNEX 1995 Stock Option Plan (Exhibit No. 2 to the
Registrant's Proxy Statement dated March 21, 1994, File No.
1-8608).
(10)(iii)26 NYNEX Executive Retention and Employment Agreement (Exhibit
No. (10)(iii)28 to the Registrant's 1994 Annual Report on Form
10-K, File No. 1-8608).
(10)(iii)27 NYNEX 1990 Stock Option Plan as amended (Exhibit No. 2 to the
Registrant's Proxy Statement dated March 20, 1995, File No.
1-8608).
(10)(iii)28 NYNEX 1995 Stock Option Plan as amended (Exhibit No. 1 to the
Registrant's Proxy Statement dated March 20, 1995, File No.
1-8608).
(10)(iii)29 NYNEX 1995 Long Term Incentive Program as amended (Exhibit No.
3 to the Registrant's Proxy Statement dated March 20, 1995,
File No. 1-8608).
(10)(iii)30 NYNEX Executive Officer Short Term Incentive Plan (Exhibit No.
4 to the Registrant's Proxy Statement dated March 20, 1995,
File No. 1-8608).
(10)(iii)31 NYNEX Executive Employment Agreement.
(10)(iii)32 Description of NYNEX Senior Management Non-Qualified Defined
Contribution Pension Plan.
26
<PAGE>
Exhibit
Number
(10)(iii)33 Description of NYNEX Senior Management Account Balance
Deferral Plan.
(11) Computation of Earnings Per Share.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) NYNEX 1995 Annual Report to Stockholders.
(21) Subsidiaries of NYNEX.
(23) Consent of Independent Accountants.
(24) Powers of attorney.
(b) Reports on Form 8-K.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NYNEX CORPORATION
By /s/ P.M. Ciccone
---------------------------------
P. M. Ciccone
Vice President and Comptroller
March 21, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Principal Executive Officer:
I. G. Seidenberg*
Chairman of the Board and
Chief Executive Officer
Principal Financial Officer:
A. Z. Senter*
Executive Vice President
and Chief Financial Officer
Principal Accounting Officer:
P. M. Ciccone
Vice President and Comptroller
A Majority of Directors: *By /s/ P.M. Ciccone
John Brademas* ---------------------------------
Randolph W. Bromery* (P. M. Ciccone, as attorney-in-fact
Richard L. Carrion* and on his own behalf as
Lodewijk J. R. de Vink* Principal Accounting Officer)
Stanley P. Goldstein* March 21, 1996
Helene L. Kaplan*
Elizabeth T. Kennan*
Hugh B. Price*
Frederic V. Salerno*
Ivan G. Seidenberg*
Walter V. Shipley*
John R. Stafford*
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of NYNEX Corporation and its
subsidiaries has been incorporated by reference in this Annual Report on Form
10-K from page 26 of the 1995 Annual Report of NYNEX Corporation. In connection
with our audits of such consolidated financial statements, we have also audited
the related consolidated financial statement schedule listed in the index on
page 22 of this Form 10-K.
In our opinion, the consolidated financial statement schedule referred to above,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information required
to be included therein.
Coopers & Lybrand L.L.P.
New York, New York
February 5, 1996
29
<PAGE>
<TABLE>
<CAPTION>
NYNEX CORPORATION
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------
(1) (2)
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts Deductions Period
- ------------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR UNCOLLECTIBLES
<S> <C> <C> <C> <C> <C>
Year 1995 . . . . . . . $ 226.7 $ 175.8 $238.4 (a) $419.3 (b) $ 221.6
Year 1994 . . . . . . . $ 204.7 $ 178.9 $200.0 (a) $356.9 (b) $ 226.7
Year 1993 . . . . . . . $ 190.3 $ 144.0 $134.0 (a) $263.6 (b) $ 204.7
RESTRUCTURING
Year 1995 . . . . . . . $ 847.9 $ --- $ --- $411.4 $ 436.5
Year 1994 . . . . . . . $1,522.5 $ --- $ --- $674.6 $ 847.9
Year 1993 . . . . . . . $ 274.0 $1,570.1 $ 31.0 (c) $352.6 $1,522.5
VALUATION ALLOWANCE FOR DEFERRED
TAX ASSETS
Year 1995 . . . . . . . $ 42.2 $ 7.3 $ (2.2) $ 17.6 $ 29.7
Year 1994 . . . . . . . $ 113.9 $ --- $ --- $ 71.7 $ 42.2
Year 1993 . . . . . . . $ --- $ 113.9 $ --- $ --- $ 113.9
</TABLE>
- -------------------
(a) Includes amounts to establish a reserve for purchased accounts
receivables.
(b) Amounts written-off as uncollectible. Amounts previously written-off
are credited directly to this account when recovered.
(c) Amounts charged to other income.
30
DESCRIPTION OF AMENDMENTS TO
SENIOR MANAGEMENT
INCENTIVE AWARD DEFERRAL PLAN
(EFFECTIVE AUGUST 1, 1995)
- --------------------------------------------------------------------------------
Plan amendments provide same nine investment options for cash deferrals as in
Executive Retirement Account, in lieu of credited interest based upon average
10-year U.S. Treasury Note rate.
DESCRIPTION OF AMENDMENTS TO
NYNEX SENIOR MANAGEMENT NON-QUALIFIED PENSION PLAN
(EFFECTIVE AS OF OCTOBER 19, 1995)
- --------------------------------------------------------------------------------
PLAN TERMINATION. The Company's right to terminate the Plan in whole or in part
- ----------------
and each Participating Company's right to withdraw from this Plan, at any time,
for any reason, with or without notice, shall not affect or reduce (A) the
benefits of retired Senior Managers or their annuitants or (B) benefits accrued
as of the date of such withdrawal or termination for active Senior Managers.
<PAGE>
DESCRIPTION OF AMENDMENTS TO
NYNEX SENIOR MANAGEMENT NON-QUALIFIED SUPPLEMENTAL SAVINGS PLAN
(EFFECTIVE AS OF JANUARY 3, 1995)
- --------------------------------------------------------------------------------
Plan amendments provide same investment options available from time to time
under the NYNEX Corporation Savings Plan for Salaried Employees, in lieu of
credited interest based upon average 10-year U.S. Treasury Note rate.
Agreement
---------
AGREEMENT, dated as of September 1, 1994, between NYNEX Corporation, a
Delaware corporation (the "Company"); and Alan Z. Senter, an individual residing
at 2 West 67th Street, New York, NY 10023 (the "Executive").
In consideration of the mutual agreements and covenants contained
herein, the Company and the Executive hereby agree as follows:
1. Executive Duties. The Company hereby employs the Executive, and the
----------------
Executive hereby agrees to serve the Company, in the capacity of
Executive Vice President and Chief Financial Officer. The Executive
will devote his entire business time and best efforts during the Term
of Employment (as hereinafter defined) to the performance of his
duties, as now or hereafter assigned to him by the Vice Chairman
Finance and Business Development, the Chairman and Chief Executive
Officer, or the Board of Directors of the Company. If Executive
terminates employment during the Term of Employment because of a
material change in duties, reporting relationship whereby the Executive
reports to someone below the Vice Chairman level, or working
conditions, payments pursuant to paragraph 3 hereof shall be governed
by subparagraph 3(g)(v) hereof.
2. Term of Employment. The term of employment (the "Term of
------------------
Employment"), except as otherwise specified herein, shall commence on
September 1, 1994 and shall end on August 31, 1997.
3. Compensation. Except as hereinafter provided, the Company shall
------------
pay to the Executive, and the Executive shall accept from the Company,
for the services and duties to be rendered and performed by the
Executive during the Term of Employment:
(a) Base Compensation.
-----------------
(i) For the period September 1, 1994 to December 31,
1994, base compensation at the annual rate of
$400,000 (subject to applicable withholding and other
taxes), payable in equal monthly installments on or
before the first day of the month following each of
the months during such period.
(ii) For the period January 1, 1995 to August 31,
1997, this annual base rate, $400,000, shall be
increased by the same percentage increase and at the
same time as the Senior Managers' Compensation
Structure for members of the Senior Management
Compensation Group is increased during the Term of
Employment.
(b) Short Term Incentive Plan. During the Term of
-------------------------
Employment, the Executive shall participate in the
Company's Senior Management Short Term Incentive Plan
(the "STIP"). The maximum award earned by the
Executive shall be $600,000 per year prorated in
accordance with the terms of the STIP. For the period
September 1, 1994 to December 31, 1994, the Standard
Award for the Executive will be $l00,000, payable in
accordance with the terms of the STIP.
<PAGE>
-2-
(c) Long Term Incentive Plan. During the Term of Employment,
------------------------
the Executive shall participate in the NYNEX Senior
Management Long Term Incentive Plan (the "LTIP") to the same
extent awards are made to members of the Senior Management
Compensation Group. The Company will award the Executive
$128,000 for the 1994-1997 Performance Period pursuant to
the LTIP.
(d) Stock Options. During the Term of Employment, the Executive
-------------
will be eligible to participate in all NYNEX stock option
plans to the same extent as members of the Senior Management
Compensation Group; provided, however, that subject to the
approval of the Committee on Benefits of the Board of
Directors of the Company (the "Committee"), should the
Executive be terminated without cause, the provisions of
clause (x) of subparagraph 3(g)(v) hereof will apply to
options granted to the Executive. Subject to the approval
of the Committee, the Company will grant the Executive
options for 56,000 shares as of the date the Executive
commences employment, pursuant to the NYNEX 1990 Stock
Option Plan.
(e) Other Benefits. In addition to the compensation and
--------------
STIP, LTIP and Stock Option Plan grants and awards provided to
the Executive pursuant to this Paragraph 3, the Company shall
provide the following benefits to the Executive during
the Term of Employment:
(i) The Executive, to the extent eligible, shall
participate in the current and future employee benefit plans
and programs sponsored by NYNEX, including but not limited
to the NYNEX Mid-Career Hire Program, the NYNEX Mid-Career
Pension Plan, and any medical, dental, and life insurance
plans and programs;
(ii) The Company will provide the Executive with split
dollar life insurance having an initial death benefit of
$2,000,000, and estimated cash values in accordance with the
illustration provided to the Executive by the Company,
pursuant to and in accordance with the terms and conditions
of the NYNEX Supplemental Life Insurance Plan;
(iii) The Executive shall be entitled to all perquisites
and benefits available members of the Senior Management
Compensation Group; and
(iv) If the Company Board of Directors does not approve the
defined contribution pension plan currently under
consideration, at termination of employment for any reason,
the Executive shall have a choice of (i) a cash payment or
annuity payments equal to what would have been provided by
<PAGE>
-3-
the defined contribution pension plan to the extent
Executive would have been eligible under the conditions of
his termination or (ii) benefits payable under existing
pension plans to the extent eligible.
(f) Sign-on Bonus. Subject to the approval of the Committee,
-------------
as soon as practical after commencement of employment, the
Company will grant to the Executive $600,000 worth of shares
of restricted stock under, and in accordance with, the terms
of the NYNEX 1987 Restricted Stock Award Plan, subject to
the restrictions that if the Executive is still employed on
the following dates, the restrictions shall lapse as
follows:
August 31, 1995 one-third of the shares;
August 31, 1996 one-third of the shares;
August 31, 1997 one-third of the shares.
(g) Termination of Payments. Payments under this subparagraph 3
-----------------------
shall terminate as follows:
(i) If the Executive voluntarily terminates his employment
with the Company at any time during the Term of Employment,
except for any reason set out in paragraph 1 of this
Agreement, (w) the Company shall make no further payments to
the Executive pursuant to subparagraph 3(a) hereof for any
period of time subsequent to the date of such termination;
(x) grants and awards previously made to the Executive
pursuant to the STIP, LTIP and the Stock Option Plan shall
be governed by the terms of those plans; (y) all benefits
provided pursuant to subparagraph 3(e) hereof shall cease as
of the date of such termination, except as may be provided
in the plans or programs or as required by law; and (z)
rights to all restricted stock for which the restrictions
have not lapsed pursuant to subparagraph (f) hereof shall be
forfeited.
(ii) If the Executive dies at any time during the Term of
Employment, (w) the Company shall make no payments under
paragraph 3(a) of this Agreement to the Executive or his
executors, administrators, assigns, beneficiaries or estate
for any periods of time subsequent to the date of the
Executive's death; (x) grants and awards previously made to
the Executive pursuant to the STIP, LTIP and the Stock
Option Plan shall be governed by the terms of those plans;
(y) the continuation, expiration and termination of the
benefits provided pursuant to subparagraph 3(e) hereof shall
be governed by the terms of the employee benefit plans and
programs applicable in the event of the death of an employee
as in effect on the date of death; and (z) rights to all
restricted stock for which the restrictions have not lapsed
<PAGE>
-4-
pursuant to subparagraph (f) hereof shall immediately vest
and all restrictions shall lapse.
(iii) If the Executive's employment is terminated for cause
as defined in Paragraph 4 hereof, (w) the Company shall be
released and discharged of and from all obligations to make
payments pursuant to 3(a) for periods of time subsequent to
the date of such termination; (x) grants and awards
previously made to the Executive pursuant to the STIP, LTIP
and the Stock Option Plan shall be governed by the terms of
those plans; (y) all benefits provided pursuant to
subparagraph 3(e) hereof shall cease as of the date of such
termination, unless otherwise provided by the terms of the
benefit plans and programs in effect at the date of such
termination; and (z) rights to all restricted stock for
which the restrictions have not lapsed pursuant to
subparagraph (f) hereof shall be forfeited.
(iv) If the Executive becomes and remains totally disabled
during the Term of Employment, (w) the Company shall
continue to pay the monthly payments specified in
subparagraph 3(a) hereof to the Executive, in accordance
with the terms of the NYNEX Sickness and Accident Disability
Plan and the NYNEX Senior Management Long Term Disability
and Survivor Protection Plan; (x) grants and awards
previously made to the Executive pursuant to the STIP, LTIP
and the Stock Option Plan shall be governed by the terms of
those plans; (y) all benefits provided pursuant to
subparagraph 3(e) hereof shall continue to be provided
pursuant to the terms of the benefit plans and programs as
in effect at the time; and (z) restricted stock for which
the restrictions have not lapsed pursuant to subparagraph
(f) hereof shall continue to vest.
(v) If the Executive's employment is terminated by the
Company without cause, (v) the Company shall continue to pay
the monthly payments specified in subparagraph 3(a) hereof
to the Executive to the end of the Term of Employment; (w)
grants and awards previously made to the Executive pursuant
to the STIP and LTIP shall be governed by the terms of those
plans; provided, however, Executive shall be paid $300,000
per year for the remainder of the Term of Employment,
prorated in accordance with the terms of the STIP, as if the
payments were made pursuant to the STIP; (x) stock options
that have not become exercisable pursuant to the terms of
the Stock Option Plan shall immediately vest and become
exercisable as of the date the Executive is notified of the
termination; provided, however, the Executive shall be given
sixty (60) days prior notice so that he will have sixty (60)
days to exercise the vested options and no option or part
thereof shall be exercisable prior to the first anniversary
<PAGE>
-5-
of the date the option is granted; (y) the continuation,
expiration and termination of all other benefits provided
pursuant to subparagraph 3(e) hereof shall be governed by
the terms of the employee benefit plans and programs as in
effect on the date of such termination; and (z) restricted
stock for which the restrictions have not lapsed pursuant to
subparagraph (f) hereof shall immediately vest and all
restrictions shall lapse.
4. Termination of Employment.
-------------------------
(a) The Executive may voluntarily terminate his employment with
the Company at any time during the Term of Employment by
giving thirty (30) days written notice to the Company.
(b) The Executive's employment may be terminated by the Company
during the Term of Employment with or without cause at the
sole discretion of the Company. The term "cause" shall mean
grossly incompetent performance or substantial or continuing
inattention to or neglect of the duties and responsibilities
assigned to the Executive, in the sole discretion and
judgment of the Board of Directors of the Company, including
but not limited to fraud, misappropriation, embezzlement, or
the like, involving the Company or any of its subsidiaries
or affiliates; or commission of any felony of which the
Executive is finally adjudged guilty in a court of competent
jurisdiction; or a willful breach of Paragraphs 8, 9, 10, or
11 of this Agreement. In the event that the Company
terminates the employment of the Executive for cause, it
will state in writing the grounds for such termination and
provide this statement to the Executive within 10 business
days after the date of termination. In the event that the
reason for termination for cause was grossly incompetent
performance or substantial or continuing inattention to or
neglect of the duties and responsibilities assigned to the
Executive, then the Company will give the Executive 60
calendar days prior written notice and an opportunity to
cure his performance within these 60 calendar days. In the
event that the Executive challenges a for cause
determination and a court of law determines that the
termination was not for cause as defined in this Agreement,
the Company will pay the Executive's court costs and
reasonable attorney fees.
5. Expenses. In accordance with the Company's usual practices and
--------
procedures, the Company agrees to reimburse the Executive for his
reasonable travel expenses (other than normal commutation expenses) and
other reasonable out-of-pocket expenses directly related to his work
for the Company.
<PAGE>
-6-
6. Holidays and Vacation. The Executive shall have the 11 holidays per
---------------------
calendar year recognized by the Company for its management employees.
During 1994 the Executive shall be entitled to 2 management personal
days and 15 vacation days. During each subsequent calendar year during
the Term of Employment, the Executive shall have an aggregate of 4
management personal days and 25 vacation days. Notwithstanding the
foregoing, such management personal days and vacation days shall be
scheduled at such times and in such number with due regard to the needs
of the business.
7. Capacity.
--------
(a) The Executive hereby warrants and represents that he
is legally capable and now physically capable of
performing the duties contemplated in this Agreement
and that such performance will not violate any
agreements he has with, or breach any duties he owes
to, any other employer or organization.
(b) The Executive hereby warrants and represents that he has not,
and covenants and agrees that he will not, disclose or
appropriate to his own use or to the use of the Company
or its subsidiaries or affiliates any secret or confidential
information pertaining to the business of GAF/ISP Corporation
or Xerox Corporation, or its clients or
prospective clients obtained by the Executive while he was
employed by GAF/ISP Corporation or Xerox Corporation, where
such disclosure or appropriation would violate any
agreements he has with, or would breach any duties he owes
to GAF/ISP Corporation or Xerox Corporation, or its clients
or prospective clients.
(c) The Company hereby warrants and represents that this
Agreement has been duly and validly authorized,
executed and delivered.
8. Non-Competition and Non-Solicitation.
------------------------------------
(a) Without the prior written consent of the Company, the
Executive shall not, during the Term of Employment and for
a period of two years from the date of voluntary termination
of employment, or for a period of six months from the date
of termination of employment for any other reason including
voluntary termination under paragraph 1 of this Agreement,
with the Company, or any of its subsidiaries or affiliates,
either for himself or as an agent, partner, joint venturer
or employee of any Person, other than the Company, or any of
its subsidiaries or affiliates, or in any other capacity,
directly or indirectly:
<PAGE>
-7-
(i) engage in Competitive Services for (x) any Client or
(y) any Prospective Client; or
(ii) contact, solicit or attempt to solicit, whether
for his own account or for the account of any Person
other than the Company, or any of its subsidiaries or
affiliates, (x) any Client or (y) any Prospective
Client; or
(iii) induce away from the Company, or any of its
subsidiaries or affiliates, or facilitate the
inducement away from the Company, or any of its
subsidiaries or affiliates, any personnel of the
Company, or any of its subsidiaries or affiliates, or
interfere with the faithful discharge by such
personnel of their contractual and fiduciary
obligations to serve the interests of the Company, or
any of its subsidiaries or affiliates and their
Clients; or (iv) invest in or otherwise be connected
with, in any manner, any Person that provides or
intends to provide products or services of the type
provided by the Company, or any of its subsidiaries
or affiliates for (x) any Client or (y) any
Prospective Client.
(b) For purposes of this Paragraph 8, the following terms shall
have the following definitions:
(i) "Affiliate" of a Person means any Person directly or
indirectly controlling, controlled by, or under
common control with, such other Person.
(ii) "Client" means any Person for whom the Company
performed Competitive Services within the 18 months
immediately preceding the Executive's termination of
employment.
(iii)"Competitive Services" means any business
activity which was being conducted by the Company, or
any of its subsidiaries or affiliates, at the time of
the Executive's termination of employment and in
which business activity the Executive participated
during his employment with the Company, or any of its
subsidiaries or affiliates.
(iv) "Person" means an individual, a corporation, a
partnership, an association, a trust or any other
entity, including a government or political
subdivision or an agency or instrumentality thereof.
<PAGE>
-8-
(v) "Prospective Client" means any Person to whom the
Company submitted, or assisted in the submission of,
a proposal for Competitive Services during the 18
months immediately preceding the Executive's
termination of employment.
(c) Ownership of less than 5% of the securities in a
publicly traded corporation shall not constitute a
violation of this Agreement.
9. Intellectual Property and Proprietary Information.
-------------------------------------------------
The Executive has executed the NYNEX Employee Agreement Regarding
Intellectual Property and Proprietary Information which is attached
hereto as Appendix A and made a part of this Agreement.
10. Company Rules; Code of Business Conduct. The Executive agrees to
---------------------------------------
abide by all of the rules applicable to Company employees as such rules
are made known to him from time to time. The Executive has received and
read the publication entitled the NYNEX Code of Business Conduct.
11. Modification of Final Judgment. The Executive has received and read
------------------------------
the publication entitled NYNEX Policy for Compliance with the
Modification of Final Judgment (August 1988) and has executed the
Acknowledgment attached thereto. Such Acknowledgment is attached hereto
as Appendix B and made a part of this Agreement.
12. Additional Remedies. In addition to any other rights or remedies,
-------------------
whether legal, equitable or otherwise, which each of the parties may
have:
(a) The Executive acknowledges that Paragraphs 8, 9, 10 and 11
of this Agreement are essential to the continued good will
and profitability of the Company and its subsidiaries and
affiliates and further acknowledges that the application and
operation thereof shall not involve a substantial hardship
upon his future livelihood. Should any court determine that
any or all of such paragraphs of this Agreement are
unenforceable in respect of scope, duration or geographic
area, such court shall substitute, to the extent
enforceable, provisions similar thereto or other provisions,
so as to provide to the Company and its subsidiaries and
affiliates, to the fullest extent permitted by applicable
law, the benefits intended by this Agreement.
(b) The parties hereto further recognize that irreparable
damage to the Company and its subsidiaries and
affiliates will result in the event that Paragraphs
8, 9, 10 and 11 of this Agreement are not
specifically enforced and that monetary damages will
not adequately protect the Company and its
subsidiaries and affiliates from a breach of this
Agreement. If any dispute
<PAGE>
-9-
13. Waiver. Failure to insist upon strict compliance with any of the
------
terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times
be deemed a waiver or relinquishment of such right or power at any
other time or times.
14. Reformation and Severability. The Executive and the Company agree
----------------------------
that the agreements contained herein shall each constitute a separate
agreement independently supported by good and adequate consideration,
shall each be severable from the other provisions of the Agreement,
and shall survive the Agreement. If a court of competent jurisdiction
determines that any term, provision or portion of this Agreement is
void, illegal or unenforceable, the other terms, provisions and
portions of this Agreement shall remain in full force and effect and
the terms, provisions and portions that are determined to be void,
illegal or unenforceable shall be limited so that they shall remain in
effect to the extent permissible by law.
15. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given if delivered by
hand or messenger, transmitted by fax, telex or telegram or mailed by
registered or certified mail, return receipt requested and postage
prepaid, as follows:
(a) If to the Company, to:
NYNEX Corporation
1113 Westchester Avenue
White Plains, New York 10604
Attention: Executive Vice President and General Counsel
(b) If to the Executive, to:
2 West 67th Street
Apartment 10B
New York, NY 10023
or to such other person or address as either of the parties shall
hereafter designate to the other from time to time by similar notice.
16. Assignability. This Agreement is personal in nature. The Executive
-------------
shall have no right to assign or transfer this Agreement. In the event
of any attempted assignment or transfer by the Executive of his duties
and obligations contrary to this paragraph, all the Executive's rights
under this Agreement shall be forfeited, and the Company shall have no
further liability under this Agreement. The Company may assign or
transfer its rights under this Agreement only to a subsidiary or
affiliate of the Company so long as such assignment shall not
substantially change the current status of this Agreement or its place
of performance. No assignment by the Company shall relieve the Company
of the liabilities and responsibilities created by this Agreement.
<PAGE>
-10-
17. Entire Understanding. This Agreement constitutes the entire
--------------------
understanding between the Company and the Executive with respect to the
subject matter hereof, superseding any and all prior written or oral
understandings which may have existed.
18. Amendment. This Agreement may be amended or modified, in whole or
---------
in part, only by an agreement in writing signed by the Company and the
Executive.
19. Headings. The headings in this Agreement are inserted for
--------
convenience of reference only and are not to be considered
in the construction of the provisions herein.
20. Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the State of New York without regard
to the principles of conflicts of laws of that State.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
EXECUTIVE NYNEX CORPORATION
By
- --------------------- ---------------------
Alan Z. Senter F. V. Salerno
Vice Chairman Finance and
Business Development
EXHIBIT 10 iii 32
DESCRIPTION OF THE NYNEX EXECUTIVE RETIREMENT
ACCOUNT PLAN
The Nynex Senior Management Non-Qualified Defined Contribution Pension Plan,
which is also known as the Nynex Executive Retirement Account Plan (the "ERA
Plan"), provides nonqualified pension payments to eligible Senior Managers, and
permits eligible Senior Managers to elect among various forms of survivor
benefits for their designated beneficiaries.
The ERA Plan became effective January 1, 1995, but only for eligible Senior
Managers who were actively employed on or after January 1, 1996. For such
individuals, the ERA Plan completely replaces (beginning in 1995) three
nonqualified defined benefit pension plans previously in effect. These are the
Senior Management Non-Qualified Pension Plan, the ERISA Excess Plan, and the
Mid-Career Pension Plan (the "Prior Plans").
The ERA Plan uses a defined contribution approach to facilitate linking a
portion of each eligible Senior Manager's retirement income to the performance
of NYNEX stock. For each of the first 15 years in which a Senior Manager
participates, his or her Executive Retirement Account is credited with 25
percent of the amount by which his or her base salary exceeds $150,000, plus 25
percent of each Short-Term Incentive Award. Half of this pay-based credit
accumulates based on the investment performance of funds elected by the Senior
Manager from among a group of nine funds designated by NYNEX Corporation for
this purpose. The other half of this pay-based credit accumulates on the basis
of the performance of NYNEX stock.
In addition, for Senior Managers who commenced participation on January 1, 1995,
the projected income replacement provided under the Prior Plans at retirement
age 60 was used as a target for purposes of determining three special credits.
First, the benefit accrued under the Prior Plans as of December 31, 1994 was
converted to a lump sum Conversion Credit which is included in the opening ERA
Plan balance. Second, because the rate of increase in retirement benefits in a
defined contribution approach otherwise would not replicate the rate of increase
under the Prior Plans' defined benefit formulas, an Annual Transition Credit is
scheduled for Senior Managers whose projected ERA Plan balance at age 60 would
fall short of their projected Prior Plan benefits at age 60. Third, for Senior
Managers retiring before age 60, the ERA Plan concept still may provide a
benefit level lower than the Prior Plans. To correct for this shortfall, a
Potential Interim Amount may be credited at retirement, if certain conditions
are met. The special credits described in this paragraph are available only to
certain Senior Managers who commenced participation under the ERA Plan on
January 1, 1995.
<PAGE>
Any special credits described in the preceding paragraph will accumulate based
on the performance of funds selected by the Senior Manager from among a group of
nine funds designated by NYNEX Corporation for this purpose.
In order to avoid adverse income tax consequences, no assets shall be set aside
for the benefit of Senior Managers, and no assets shall actually be invested in
funds which a Senior Manager selects as a measure for ERA Plan accumulations
under this Plan. All payments are made entirely from the general assets of NYNEX
Corporation or another Participating Company.
In a year prior to the year of retirement or other termination of employment, a
Senior Manager can elect to receive his or her ERA Plan balances immediately
upon retirement or other termination of employment as a single lump sum, in
various annuity forms, or part as a lump sum and part as an annuity. Or, a
Senior Manager can elect an annual lifetime income equal to the greater of
current "earnings" (to the extent the current ERA Plan balance exceeds the ERA
Plan balance at commencement of distribution), (or 8 percent of the ERA Plan
balance at commencement of distribution,) provided that at the Senior Manager's
death, any remaining ERA Plan balance shall be paid to his or her designated
beneficiaries.
To the extent that a life annuity form is elected, post-retirement survivor
benefits (if any) shall be determined exclusively by the terms of the annuity
payment form.
To provide for the possibility of death prior to retirement, a Senior Manager
can designate one of several forms of payment to his or her surviving
beneficiary or beneficiaries.
NOTE: THE ABOVE IS ONLY A BROAD OUTLINE OF THE MAJOR
FEATURES OF THE ERA PLAN. ANY BENEFITS OR RIGHTS
UNDER THE ERA PLAN WILL BE DETERMINED BY THE
SPECIFIC ERA PLAN PROVISIONS AS THEY APPLY TO EACH CASE.
EXHIBIT 10 iii 33
DESCRIPTION OF THE NYNEX SENIOR MANAGEMENT ACCOUNT BALANCE DEFERRAL PLAN
This Plan provides for the deferral and ultimate distribution of a Senior
Manager's short-term incentive awards, beginning with the amount earned in 1995
and payable in 1996.
The entire amount of each year's short-term incentive award is credited to a
"TSR Account," the value of which fluctuates to reflect NYNEX Corporation's
annualized total shareholder return.
Awards are first credited to the TSR Account as of March 1, 1996. Then, on March
1, 1997 and on each succeeding March 1, the following adjustments are made to
the TSR Account.
First, the accumulated TSR Account balance is credited to reflect NYNEX
Corporation's annualized total shareholder return for the preceding three
calendar years.
Second, the amount of the award that the Senior Manager earned during the
preceding calendar year is credited to the TSR Account.
Third, one-half of the TSR Account is debited from the adjusted TSR Account
balance.
Fourth, according to the Senior Manager's prior irrevocable election, the amount
debited either is paid immediately to the Senior Manager in cash, or is credited
to the Senior Manager's Account under the NYNEX Senior Management Incentive
Award Deferral Plan.
When the Senior Manager terminates employment with NYNEX Corporation or another
applicable Participating Company, the full remaining balance in his or her TSR
Account (adjusted to reflect earnings through the termination date) is paid to
the Senior Manager immediately in a single cash payment. Amounts previously
transferred to the NYNEX Senior Management Incentive Award Deferral Plan are
paid under the terms of that Plan.
At termination of employment, any short-term incentive award that had not
previously been credited under this Plan is paid in cash on March 1 of the year
following the year in which the services were performed that gave rise to the
award.
NOTE: THE ABOVE IS ONLY A BROAD OUTLINE OF THE MAJOR
FEATURES OF THE PLAN. ANY BENEFITS OR RIGHTS UNDER
THE PLAN WILL BE DETERMINED BY THE SPECIFIC PLAN
PROVISIONS AS THEY APPLY TO EACH CASE.
Exhibit 11
NYNEX CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1995 1994 1993
---- ---- ----
Earnings (loss) before extraordinary item and cumulative
<S> <C> <C> <C>
effect of change in accounting principle................... $ 1,069.5 $792.6 $(272.4)
Extraordinary item for the discontinuance of regulatory
accounting principles, net of taxes........................ (2,919.4) - -
Cumulative effect of change in accounting for
postemployment benefits, net of taxes...................... - - (121.7)
Net income (loss)............................................ $(1,849.9) $792.6 $(394.1)
I. Earnings (loss) per share (used for financial
reporting):
Weighted average number of common shares
outstanding (a)...................................... 426.5 418.8 412.7
Earnings (loss) per share before extraordinary item and
cumulative effect of change in accounting principle.. $ 2.50 $ 1.89 $ (.66)
Extraordinary item per share........................... (6.84) - -
Cumulative effect per share of change in
accounting principle................................. - - (.29)
Earnings (loss) per weighted average share of
common stock......................................... $(4.34) $ 1.89 $ (.95)
II. Primary earnings (loss) per share (including
common stock equivalents) (b):
Weighted average number of common shares
outstanding.......................................... 426.5 418.8 412.7
Dilutive effect of outstanding options (determined
by application of the treasury stock method)......... 3.0 1.1 3.3
Total shares used in calculation of primary
earnings (loss) per share............................ 429.5 419.9 416.0
Primary earnings (loss) per share before
extraordinary item and cumulative effect
of change in accounting principle.................... $ 2.49 $ 1.89 $ (.66)
Extraordinary item per share........................... (6.80) - -
Cumulative effect per share of change in
accounting principle................................. - - (.29)
Primary earnings (loss) per share...................... $(4.31) $ 1.89 $ (.95)
III. Fully diluted earnings (loss) per share (b):
Weighted average number of common shares used in
calculation of primary earnings (loss) per
share above.......................................... 429.5 419.9 416.0
Additional dilutive effect of outstanding options
(as determined by application of treasury
stock method)....................................... .6 .2 .2
Total shares used in calculation of fully diluted
earnings (loss) per share............................ 430.1 420.1 416.2
Fully diluted earnings (loss) per share before
extraordinary item and cumulative effect of
change in accounting principle....................... $ 2.49 $ 1.89 $ (.66)
Extraordinary item per share........................... (6.79) - -
Cumulative effect per share of change in
accounting principle................................. - - (.29)
Fully diluted earnings (loss) per share................ $(4.30) $ 1.89 $ (.95)
</TABLE>
(a) Excludes common stock equivalents in accordance with provisions of
Accounting Principles Board Opinion No. 15, "Earnings Per Share" ("APB
No. 15") because such equivalent shares result in dilution of less than
3%.
(b) This calculation is submitted in accordance with Item 601 of Regulation
S-K of the Securities and Exchange Commission, although not required by
APB No. 15 because it results in dilution of less than 3%.
Exhibit 12
NYNEX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS)
Year
<TABLE>
1995 1994 1993 1992 1991
<CAPTION>
<S> <C> <C> <C> <C> <C>
Earnings
Earnings before Interest Expense,
Extraordinary Item and Cumulative
Effect of Change in Accounting Principle $1,803.4 $1,466.4 $387.1 $1,995.8 $1,326.8
Federal, State and Local Income Taxes 640.9 303.7 (172.7) 570.4 192.1
Estimated Interest Portion of Rental Expense* 117.3 109.0 117.3 126.2 127.9
Priority Distributions 47.1 29.9 15.2 - -
-------- -------- ------ -------- --------
Total Earnings* $2,608.7 $1,909.0 $346.9 $2,692.4 $1,646.8
======== ======== ====== ======== ========
Fixed Charges
Total Interest Expense $ 733.9 $ 673.8 $659.5 $ 684.6 $ 726.0
Estimated Interest Portion of Rental Expense* 117.3 109.0 117.3 126.2 127.9
Priority Distributions 47.1 29.9 15.2 - -
-------- -------- ------ -------- --------
Total Fixed Charges* $ 898.3 $ 812.7 $792.0 $ 810.8 $ 853.9
======== ======== ====== ======== ========
Ratio of Earnings to Fixed Charges** 2.90 2.35 .44 3.32 1.93
======== ======== ====== ======== ========
</TABLE>
* Restated to conform to current year's presentation.
** Earnings were inadequate to cover Fixed Charges by $445.1 million for
the year ended December 31, 1993 as a result of $2.1 billion of fourth
quarter 1993 business restructuring charges ($1.4 billion after-tax).
NYNEX
ANNUAL REPORT
1995
<PAGE>
CONTENTS
- --------
Introduction 1
Financial Highlights 2
Letter to Share Owners 4
Corporate Citizenship 9
1995 Financial Results 9
NYNEX Corporate Officers, Officers of Principal
Operating Groups and Share Owner Information 51
NYNEX Board of Directors 52
FOR INFORMATION ABOUT NYNEX'S 1996 ANNUAL MEETING OF SHARE OWNERS, SEE PAGE 51.
ABOUT THIS REPORT
- -----------------
The NYNEX 1995 Annual Report and Proxy Statement is printed entirely on
non-glossy, recycled paper. This is the first time that NYNEX has combined the
Annual Report and Proxy Statement into one document. Our goal is to create a
more convenient, cost-effective and environmentally responsible share owner
document.
VISIT THE "NYNEX CONNECTION" ON THE WORLD WIDE WEB (http://www.nynex.com). OTHER
NYNEX INTERNET WEB SITES INCLUDE THE NYNEX INTERACTIVE YELLOW PAGES
(http://www.niyp.com); NYNEX CABLECOMMS (http://www.nynex.co.uk/nynex/); AND
NYNEX SCIENCE & TECHNOLOGY-ASIA (http://www.nynexbk.co.th/).
OUR CORPORATE MISSION
- ---------------------
NYNEX Corporation's mission is to be a world-class leader in helping people
communicate using information networks and services. NYNEX is a global
communications and media corporation that provides a full range of services in
the northeastern United States and high-growth markets around the world,
including the United Kingdom, Thailand, Gibraltar, Greece, Indonesia, the
Philippines, Poland, Slovakia and the Czech Republic. NYNEX is a leader in
telecommunications, wirefree communications, directory publishing and video
entertainment and information services.
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Introduction 1
- --------------------------------------------------------------------------------
NYNEX IN 1995: OUR STORY FOR THE YEAR IS A POSITIVE ONE: NEW SERVICES. MORE
CUSTOMERS. EXCITING ALLIANCES. STRONG FINANCIAL RESULTS. SIGNIFICANT GROWTH. AND
A SOLID PLATFORM FOR GROWTH FOR THE YEARS TO COME....
<PAGE>
FINANCIAL HIGHLIGHTS
[The four tables below represent four bar graphs in printed Annual Report]
Earnings (Loss) Per Share
(in dollars)
A B
91.......... 1.49 2.86
92.......... 3.20 3.20
93.......... -0.95 3.00
94.......... 1.89 2.97
95.......... -4.34 3.27
Return to Equity
A B
91.......... 6.4% 12.2%
92.......... 13.8% 13.8%
93.......... -4.0% 12.5%
94.......... 9.2% 14.4%
95.......... -25.4% 15.5%
Operating Revenues
(dollars in billions)
A C
91.......... 13.3 12.9
92.......... 13.2 12.8
93.......... 13.4 13.0
94.......... 13.3 12.6
95.......... 13.4 13.1
Net Income (Loss)
(dollars in millions)
A B
91.......... 601 1,151
92.......... 1,311 1,311
93.......... -394 1,235
94.......... 793 1,245
95.......... -1,850 1,397
A=Reported
B=Excluding restructure and other charges
C=As a result of the formation of the Bell Atlantic NYNEX Mobile cellular
partnership in the third quarter of 1995, cellular results are now reported on
an equity basis rather than a consolidated basis. Revenues adjusted to permit
comparison. For 1995, revenues are also adjusted for a change in presentation of
gross receipts tax.
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Financial Highlights 3
- --------------------------------------------------------------------------------
December 31,
(In millions, except per share
data and total employees) 1995 1994 1993
- --------------------------------------------------------------------------------
OPERATING DATA
Operating Revenues $13,407 $13,307 $13,408
- --------------------------------------------------------------------------------
Earnings (Loss) before Extraordinary
Item and Cumulative Effect of Change
in Accounting Principle $ 1,069 $ 793 $ (272)
Extraordinary Item for the
Discontinuance of Regulatory
Accounting Principles, Net of Taxes $(2,919) -- --
Cumulative Effect of Change in Accounting
for Postemployment Benefits,
Net of Taxes -- -- (122)
- --------------------------------------------------------------------------------
Net Income (Loss) $(1,850) $ 793 $ (394)
PER SHARE DATA
Earnings (Loss) before Extraordinary
Item and Cumulative Effect of Change
in Accounting Principle $ 2.50 $ 1.89 $ (.66)
Extraordinary Item $ (6.84) -- --
Cumulative Effect of Change in
Accounting Principle -- -- $ (.29)
- --------------------------------------------------------------------------------
Earnings (Loss) $ (4.34) $ 1.89 $ (.95)
Dividends $ 2.36 $ 2.36 $ 2.36
Book Value $ 14.06 $ 20.26 $ 20.28
OTHER DATA
Total Assets $26,220 $30,068 $29,458
Stockholders' Equity $ 6,079 $ 8,581 $ 8,416
Capital Expenditures* $ 3,188 $ 3,012 $ 2,717
Network Access Lines in Service 17.1 16.6 16.0
Total Employees 65,800 70,600 76,200
- --------------------------------------------------------------------------------
1995 results include an extraordinary charge of $2.9 billion, or $6.84 per
share, for discontinuance of accounting under Statement 71 and a net charge of
$327.0 million, or $0.77 per share, for the enhanced pension offer and
non-recurring gains and charges. 1994 results include after-tax charges for the
enhanced pension offer of $452.8 million, or $1.08 per share. 1993 results
include after-tax charges of $1.6 billion, or $3.95 per share, for business
restructuring and other charges, primarily related to efforts to redesign
operations and to force reduction programs.
* Excludes additions under capital lease obligations and, prior to the
discontinuance of Statement 71, the equity component of allowance for funds
used during construction.
<PAGE>
- --------------------------------------------------------------------------------
4 Letter to Share Owners NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
TO OUR SHARE OWNERS:
[picture]
IVAN SEIDENBERG
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ACCESS LINES IN THE NORTHEAST AND OVERSEAS*
(in millions)
[A chart appears in the printed report]
*Overseas access lines include lines for NYNEX CableComms, TelecomAsia and
Gibraltar NYNEX Communications Ltd.
In 1995, NYNEX made excellent progress on the road to becoming a global provider
of communications, entertainment and information products and services. Our
growth -- and our strong financial results -- were fueled by some exciting new
customer initiatives, key strategic wins, a strong management team and an
energized, committed work force. I'm pleased to report the following:
o Net income for the year was up 12.1 percent to $1.4 billion, or $3.27 per
share, and included three straight quarters of double-digit earnings growth.
These figures are adjusted for certain non-recurring items for 1994 and 1995.**
o Consolidated revenues (which don't include revenues from our Bell Atlantic
NYNEX Mobile joint venture) were up 3.8 percent to $13.1 billion -- driven by
strong volume growth across all businesses.
o Consolidated operating expenses rose 0.9 percent over 1994 to $10.3 billion.
This expense growth -- significantly lower than our revenue growth -- was driven
by across-the-board productivity gains. The combination of strong revenue growth
and productivity gains expanded operating margins, which rose 2.2 percentage
points in 1995 to 21.3 percent.
o The number of access lines in use worldwide rose by more than a million in
1995, to about 18 million. In addition to 17.1 million lines in the Northeast,
that includes some 246,800 telecommunications lines for United Kingdom-based
NYNEX CableComms; 710,000 lines for TelecomAsia, our strategic alliance to
expand Bangkok's telephone network; and 15,800 lines for our Gibraltar
partnership.
We're building share owner value with new choices and freedoms, and a renewed
focus on serving our existing customers, developing new markets domestically and
expanding our markets globally.
- ----------
**1995 results exclude an extraordinary charge of $2.9 billion or $6.84 per
share, for discontinuance of acccounting under Statement 71 and a net charge of
$327.0 million, or $0.77 per share, for the enhanced pension offer and
non-recurring gains and charges. 1994 results exclude after-tax charges for the
enhanced pension offer of $452.8 million, or $1.08 per share.
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Letter to Share Owners 5
- --------------------------------------------------------------------------------
THE NEW MARKET FREEDOMS SPELLED OUT IN THE NATIONAL LEGISLATION COMPLEMENT THE
STATE REGULATORY BREAKTHROUGHS WE'VE ALREADY ACHIEVED.
NEW CHOICES, NEW FREEDOMS
- -------------------------
A PLATFORM FOR GROWTH
The communications reform bill signed into law by President Clinton in February
1996 helps us grow to our full potential -- and lets us take advantage of new
freedoms to provide a range of services that include new communications,
information and entertainment choices.
We intend to move aggressively to meet all the requirements that will enable us
to offer long-distance services to our current customers and to new customers --
across the nation and around the globe. And we are poised to offer a full array
of wireline and wirefree services -- voice, data, information and entertainment
- -- in packages tailored to meet customers' individual needs.
We worked hard for this legislation, and so did many of you. Thanks for your
letters and calls to Congress in support of telecommunications reform. You
helped make a difference in a tough legislative battle.
The new market freedoms spelled out in the national legislation complement the
state regulatory breakthroughs we've already achieved. With "incentive
regulation" plans approved in New York, Massachusetts and Maine, we've brought
the regulation of more than 95 percent of our telecommunications operations into
line with marketplace realities. These plans provide the right framework for
growth -- and provide an incentive to operate more efficiently. In fact, NYNEX
already is using its new pricing flexibility to introduce a number of popular
optional calling plans for business and residence customers.
SERVING OUR CUSTOMERS
- ---------------------
Today, our customers want more flexibility and control. We're meeting the
"challenge of choice" through aggressive marketing, impressive new services and
a continued focus on quality and customer satisfaction. Our strategy -- to meet
customer requirements -- is reaping rewards:
o NYNEX's core telecommunications business in the Northeast experienced record
growth last year. Access lines were up 3.4 percent over 1994. And access usage
was up 8.6 percent.
o Sales of our value-added services -- such as NYNEX PhoneSmart(R) Services,
NYNEX Voice Messaging Service and NYNEX VoiceDialingSM Service (developed by
NYNEX Science & Technology, Inc., our leading-edge research and development lab)
- -- grew more than 40 percent. The number of ISDN lines in service nearly
doubled, to more than 90,000.
o Private line revenues, led by sales of NYNEX Enterprise Services, rose more
than 3 percent in 1995, marking the first year of growth for spe-
NORTHEAST ACCESS LINES PER TELECOMMUNICATIONS EMPLOYEE
[A chart appears in the printed report]
<PAGE>
- --------------------------------------------------------------------------------
6 Letter to Share Owners NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
CELLULAR CUSTOMERS
(in thousands)
[A chart appears in the printed report]
* 1995 figure reflects the formation of a joint venture with Bell Atlantic's
wireless business.
cialized business services since the mid-1980s. And Centrex lines were up 14.5
percent, to a total of 1.4 million lines in service.
o We also introduced iMPOWER, our new strategic network vision. Working with IBM
and a host of other technology companies, we're creating an information
infrastructure -- the NYNEX Business Network Architecture -- to provide voice,
data, image, video and multimedia services to knowledge workers.
Serving customers better with quality service and more choice is the reason we
continue to invest $2.4 billion annually in our Northeast wireline network --
building an all-digital network that helps people communicate via voice, data or
video.
It's why we continue to build and nurture multilingual sales channels to tap
into high-growth ethnic markets.
And it's why we're reinventing our business around customers. Service on the
customer's schedule will be the order of the day, along with simplified, more
flexible bill-paying options, proactive network maintenance and more. Our
process re-engineering initiatives are focused on improving the quality of our
service. And NYNEX will be able to handle increased demand for new products and
services more efficiently than ever.
SERVING CUSTOMERS BETTER WITH QUALITY SERVICE AND MORE CHOICE IS THE REASON WE
CONTINUE TO INVEST $2.4 BILLION ANNUALLY IN OUR NORTHEAST WIRELINE NETWORK.
When our re-engineering initiatives are completed, some 50 megacenters will be
in place -- down from about 400 service centers in 1993. And about 17,000 people
will have left the payroll through our special pension enhancement offer.
DEVELOPING NEW MARKETS DOMESTICALLY
- -----------------------------------
At NYNEX, the world of communications is a world of wireline and wirefree
solutions ... voice, video and data services ... information and entertainment.
As we enter new lines of business, we're focused on increasing revenue from
existing customers and building our customer base:
o In 1995, Bell Atlantic NYNEX Mobile Communications enjoyed 43 percent customer
growth -- adding more than 1 million new customers through innovative
value-priced offerings such as TalkAlongSM and MobileReach(R) roaming.
MobileReach enables the partnership's 3.4 million customers to take advantage of
the single largest cellular service territory in the United States, stretching
from Maine to South Carolina.
o To establish a national presence in the wirefree marketplace, Bell Atlantic
NYNEX Mobile, along with the AirTouch/U S WEST cellular partnership, invested $1
billion in personal communications services (PCS) licenses. We'll begin
deploying PCS in 1996. When combined with existing cellular services, the
potential market for this wirefree alliance is 165 million customers.
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Letter to Share Owners 7
- --------------------------------------------------------------------------------
o Our TELE-TV joint venture with Bell Atlantic and Pacific Telesis is getting
ready to entertain you, delivering nationally branded entertainment and
information services over our networks. As NYNEX and its partners work to deploy
full-service broadband networks, we plan to begin offering TELE-TV service later
this year through our investment in CAI Wireless. This investment will give us
the ability to reach up to 7 million NYNEX customers with digital wireless cable
technology.
o At NYNEX Information Resources Company -- the premier directory publisher in
the Northeast -- stronger sales and process improvements led to 5.4 percent
revenue growth, double the growth rate of 1994. Information Resources introduced
the NYNEX Interactive Yellow Pages on the World Wide Web (http://www.niyp.com)
- -- a service that enables individuals to access the names, addresses and phone
numbers of 16.5 million businesses throughout the United States.
EXPANDING OUR MARKETS GLOBALLY
- ------------------------------
NYNEX CableComms, the second largest cable TV and telecommunications operator in
the United Kingdom, now passes 1.2 million of 2.7 million homes in 16 franchise
areas. In 1995, the number of residence telecommunications lines grew 135
percent, business phone lines jumped 168 percent and the number of cable TV
customers grew 61 percent. CableComms revenue growth more than doubled in 1995.
In June 1995, we completed an initial public offering of CableComms stock,
raising more than $600 million.
NYNEX continues to work with global partners in Europe and the Asia/Pacific
region to pursue high-growth opportunities overseas -- capitalizing on our
strength in building and managing complex telecommunications networks:
o Through TelecomAsia, our strategic alliance with the CP Group, we've built
1.56 million lines of a 2 million-line network in Bangkok, Thailand. We also
received government approval to build an additional 600,000 lines. UTV, a
TelecomAsia subsidiary, now offers cable TV services over the fiber-optic
backbone of the TelecomAsia network.
o Through our interest in another CP company, Orient Telecom & Technology
Holdings, we're pursuing telephone and cable opportunities in China -- where
only three phone lines exist for every 100 people.
o To help develop new services and technical strategies for our Bangkok networks
and the emerging communications markets of Southeast Asia, NYNEX has opened a
research and development lab in Thailand -- an overseas arm of our Science &
Technology facility.
NYNEX CABLECOMMS SUBSCRIBERS*
(in thousands)
[A chart appears in the printed report]
*Includes subscribers for residence and business telecommunications services and
cable TV. Some customers subscribe to more than one service.
<PAGE>
- --------------------------------------------------------------------------------
8 Letter to Share Owners NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
o NYNEX, along with Telecom Holding and Benpres Holdings Corp., has begun
building at least 300,000 new phone lines in the Philippines. The holding
company will provide local and international toll service on the island nation.
o NYNEX is the managing sponsor of FLAG, our Fiber-optic Link Around the Globe
project. When FLAG is completed next year, it will be the longest undersea
fiber-optic cable ever built -- a 17,000-mile cable system with 12 landing sites
from London to Tokyo, including China. FLAG will have the capacity to handle
600,000 calls simultaneously, delivering state-of-the-art broadband services. In
addition to NYNEX, the FLAG alliance includes leading international businesses
that have come together to finance construction of the cable.
o In 1995, we announced a venture to bring digital cellular phone service to
Indonesia -- a potential market of 195 million people.
o STET Hellas, the Greek cellular company in which we have a 20 percent stake,
is serving 124,000 customers, up 71 percent for the year.
o Revenue from our international directory publishing efforts in Poland, the
Czech Republic, Slovakia and Gibraltar is up 67 percent year over year. In 1995,
we distributed some 6.7 million directories overseas. NYNEX Information
WE'RE DELIVERING ON OUR OBJECTIVE OF STEADY EARNINGS GROWTH, DRIVEN BY INCREASED
REVENUE, ENHANCED PRODUCTIVITY AND SUPERIOR PERFORMANCE IN THE WORLD'S "HOTTEST"
INDUSTRY.
Resources publishes more than 338 different directories in the United States and
overseas.
NYNEX is a new kind of company in a newly competitive world. Our share owner
value-based compensation plan -- which includes employee stock ownership
programs -- gives all of our people a stake in working for our continued
success. And as we expand the scope of our business, we're keeping a sharp focus
on our commitment to "NYNEX Winning Ways." These guiding principles, which
include integrity, diversity, teamwork and accountability, define us as a team
and help us put our core values -- Quality, Ethics and Caring for the Individual
- -- into action.
That's the NYNEX story in a nutshell. We're delivering on our objective of
steady earnings growth, driven by increased revenue, enhanced productivity and
superior performance in the world's "hottest" industry. We're making excellent
progress on our vision for communications and multimedia in the Northeast and
around the globe. And we're building real momentum for continued growth and
expansion in 1996 and beyond.
/s/ Ivan
IVAN SEIDENBERG
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
<PAGE>
CORPORATE CITIZENSHIP:
HELPING THE COMMUNITIES WE SERVE
- --------------------------------
As a leading corporate citizen, NYNEX gives high priority to helping people
communicate through technology -- and helping people enrich their lives. In
1995, we distributed approximately $19.5 million in grants, matching gifts and
voluntary recognition program awards. Our grant-making philosophy is guided by
three priorities:
1) Improve the quality of education;
2) Promote long-term wellness by supporting health and human-services programs;
and
3) Promote diversity by sponsoring cultural and community partnerships.
For information about NYNEX's philanthropic programs, or for a complete list of
contributions, write to, call or fax: NYNEX, Corporate Philanthropy, 1095 Avenue
of the Americas, New York, NY 10036. Phone: (800) 360-7955; Fax: (212) 398-0951.
The e-mail address for Corporate Philanthropy is [email protected].
nynex.com Information about our philanthropic programs also is featured on
NYNEX's World Wide Web site (http://www.nynex.com).
1995
FINANCIAL
RESULTS
CONTENTS
- --------
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Selected Financial and Operating Data 25
Report of Independent Accountants 26
Report of Management 27
Consolidated Statements of Income 28
Consolidated Balance Sheets 29
Consolidated Statements of Changes in
Stockholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 32
Supplementary Information 50
<PAGE>
- --------------------------------------------------------------------------------
10 Management's Discussion and Analysis NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NATURE OF OPERATIONS
- --------------------
NYNEX Corporation ("NYNEX") is a global communications and media corporation
that provides a full range of services in the northeastern United States and in
high growth markets around the world. NYNEX has expertise in telecommunications,
wireless communications, directory publishing, and video entertainment and
information services. NYNEX's principal operating subsidiaries are New York
Telephone Company ("New York Telephone") and New England Telephone and Telegraph
Company ("New England Telephone") (collectively, the "telephone subsidiaries").
Intrastate communications services are regulated by various state public service
commissions ("state commissions"), and interstate communications services are
regulated by the Federal Communications Commission ("FCC").
BUSINESS RESTRUCTURING
- ----------------------
NYNEX's 1993 results included pretax charges of $2.1 billion ($1.4 billion
after-tax) for business restructuring, predominantly within the
telecommunications business. Business restructuring resulted from a
comprehensive analysis of operations and work processes, resulting in a strategy
to redesign them to improve efficiency and customer service, to adjust quickly
to accelerating change, to implement work force reductions, and to produce
savings necessary for NYNEX to operate in an increasingly competitive
environment.
The 1993 charges were comprised of: $1.1 billion in employee termination costs
to reduce the work force by approximately 16,800 employees by the end of 1996;
$626 million of process re-engineering charges, primarily for systems redesign
and work center consolidation; $283 million in costs associated with planned
exits from certain nontelecommunications businesses; and $106 million for asset
write-offs and loss contingency accruals.
1995 AND 1994 ADDITIONAL CHARGES
During 1994, NYNEX announced retirement incentives to provide a voluntary means
of implementing substantially all of the planned work force reductions. The
retirement incentives were to be offered at different times through 1996
according to local force requirements and were expected to generate an estimated
additional $2.0 billion in pretax charges ($1.3 billion after-tax) over that
period of time as employees elected to leave the business through retirement
incentives rather than through the severance provisions of the 1993 force
reduction plan. In 1995 and 1994, respectively, approximately 4,700 and 7,200
employees accepted the incentive plan. This resulted in $514.1 million ($326.8
million after-tax) and $693.5 million ($452.8 million after-tax), respectively,
of incremental charges for the cost of retirement incentives. The reserves
established in 1993 for severance have been and will continue to be transferred
primarily to the pension liability on a per employee basis as a result of
employees' accepting the retirement incentives. Much of the cost of the
enhancements will be funded by NYNEX's pension plans.
EMPLOYEE REDUCTIONS
The 1993 employee termination costs of $1.1 billion were comprised of $586
million for employee severance payments (including salary, payroll taxes, and
outplacement costs) and $520 million for postretirement medical costs (total
after-tax charges were $700 million). These costs were for planned work force
reductions of 4,200 management employees and 12,600 nonmanagement employees. At
December 31, 1994, the actual number of employees who elected to leave through
retirement incentives in 1994 and the expectation for 1995 and 1996 were as
follows:
1994 1995 1996 Total
- --------------------------------------------------------------------------------
Management 3,700 500 -- 4,200
Nonmanagement 3,500 5,600 3,500 12,600
- --------------------------------------------------------------------------------
Total 7,200 6,100 3,500 16,800
At December 31, 1994, the actual additional pretax charges for the retirement
incentives and related postretirement medical costs in 1994, and the expected
additional charges for 1995 and 1996 were as follows:
(In millions) 1994 1995 1996 Total
- --------------------------------------------------------------------------------
Management $ 191 $ 31 $ -- $ 222
Nonmanagement 503 804 434 1,741
- --------------------------------------------------------------------------------
Total $ 694 $ 835 $ 434 $1,963
CURRENT STATUS
During 1995, it became evident that the number of management employees leaving
under the retirement incentives would exceed the original estimate due to
additional management staff reduction efforts. It was also determined that, due
to volume of business growth, the expected reduction in the number of
nonmanagement employees would be less and would not be fully realized until
1998.
<PAGE>
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NYNEX 1995 Annual Report Management's Discussion and Analysis 11
- --------------------------------------------------------------------------------
The actual number of employees who elected to leave through retirement
incentives in 1994 and 1995 are as follows:
1994 1995 Total
- --------------------------------------------------------------------------------
Management 3,700 2,300 6,000
Nonmanagement 3,500 2,400 5,900
- --------------------------------------------------------------------------------
Total 7,200 4,700 11,900
- --------------------------------------------------------------------------------
At the present time, NYNEX expects the total number of employees who will elect
to take the pension enhancements to be in the range of 17,000 to 18,000,
consisting of approximately 7,000 management and 10,000 to 11,000 nonmanagement
employees depending on work volumes, needs of the business, and timing of the
incentive offers.
NYNEX continues to monitor the estimated additional charges to be recorded and,
at December 31, 1995, still anticipates the additional charges to be in the
range of $2.0 billion ($1.3 billion after-tax), despite the increase in the
expected number of employees who will elect to take the incentive. This estimate
is based on favorable actuarial experience for actual postretirement medical
costs, and favorable demographics of employees actually accepting the offer,
which have resulted in per capita charges being somewhat lower than expected.
The actual additional pretax charges for the retirement incentives and related
postretirement medical costs in 1994 and 1995 are as follows:
(In millions) 1994 1995 Total
- --------------------------------------------------------------------------------
Management $191 $268 $459
Nonmanagement 503 246 749
- --------------------------------------------------------------------------------
Total $694 $514 $1,208
- --------------------------------------------------------------------------------
At the present time, it is expected that the future additional pretax charges
for retirement incentives will be approximately $600 to $800 million, consisting
of $100 million for management and in the range of $500 to $700 million for
nonmanagement employees.
The actual severance reserves utilized and the application of the postretirement
medical liability established in 1993 during 1994 and 1995 are shown below:
SEVERANCE RESERVE
(In millions) 1994 1995 Total#
- --------------------------------------------------------------------------------
Management* $303 $53 $356
Nonmanagement 34 29 63
- --------------------------------------------------------------------------------
Total $337 $82 $419
- --------------------------------------------------------------------------------
* 1994 includes $45 million of the 1991 severance reserves remaining at
December 31, 1993.
# The severance utilization amounts in 1995 and 1994 are comprised of $79 and
$315 million, respectively, of severance reserves transferred to the
pension liability and $3 and $22 million, respectively, utilized for other
retiree costs.
POSTRETIREMENT MEDICAL LIABILITY
(In millions) 1994 1995 Total
- --------------------------------------------------------------------------------
Management $129 $20 $149
Nonmanagement 50 52 102
- --------------------------------------------------------------------------------
Total $179 $72 $251
- --------------------------------------------------------------------------------
Assuming that employees will continue to leave under the retirement incentives,
it is expected that the remaining $212 million of severance reserves will be
utilized and the remaining $269 million of the postretirement medical liability
will be applied in the years 1996 through 1998.
PROCESS RE-ENGINEERING
Approximately $626 million of the 1993 charges ($395 million after-tax) consists
of costs associated with re-engineering service delivery to customers. During
the period 1994 through 1996, NYNEX is decentralizing the provision of residence
and business customer service throughout the region, creating regional
businesses to focus on unique markets, and centralizing numerous operations and
support functions. At December 31, 1994, the actual 1994 utilization of reserves
for process re-engineering and the revised expected utilization for 1995 and
1996 were as follows:
(In millions) 1994 1995 1996 Total
- --------------------------------------------------------------------------------
Systems redesign $108 $162 $2 $272
Work center
consolidation 27 97 49 173
Branding 21 21 -- 42
Relocation -- 6 1 7
Training -- 21 28 49
Re-engineering
implementation 43 28 12 83
- --------------------------------------------------------------------------------
Total $199 $335 $92 $626
- --------------------------------------------------------------------------------
SYSTEMS REDESIGN is the cost of developing new systems, processes and procedures
to facilitate implementation of process re-engineering initiatives in order to
realize operational efficiencies and enable NYNEX to reduce work force levels.
These projects consist of radical changes in the applications and systems
supporting business functions to be redesigned as part of the restructuring
plan. All of the costs associated with these projects are incremental to ongoing
operations. Specifically, only software purchases and external contractor
expenses, which are normally expensed in accordance with NYNEX policy, were
included in the 1993 restructuring charges. The business processes included in
systems redesign are customer contact, customer provisioning, customer
operations, and customer support.
<PAGE>
- --------------------------------------------------------------------------------
12 Management's Discussion and Analysis NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
CUSTOMER CONTACT represents the direct interface with the customer to provide
sales, billing inquiry and repair service scheduling on the first contact.
CUSTOMER PROVISIONING involves the development of the network infrastructure,
circuit and dialtone provisioning and installation, and process standardization.
CUSTOMER OPERATIONS focuses on network monitoring and surveillance, trouble
testing, dispatch control, and proactive repair, with reliability as a critical
competitive advantage. CUSTOMER SUPPORT facilitates low-cost, reliable service
by providing support for the other three business processes.
WORK CENTER CONSOLIDATION costs are incremental costs associated with
establishing work teams in fewer locations to take advantage of lower force
levels and system efficiencies, such as moving costs, lease termination costs
(from the date premises are vacated), and other consolidation costs. BRANDING
includes the costs to develop a single "NYNEX" brand identity associated with
restructured business operations. RELOCATION costs are required to move
personnel to different locations due to work center consolidations and include
costs based on NYNEX's relocation guidelines and the provisions of collective
bargaining agreements. TRAINING costs are for training nonmanagement employees
on newly-designed, cross-functional job positions and re-engineered systems
created as part of the restructuring plan, which will permit one employee to
perform tasks formerly performed by several employees, and include tuition,
out-of-pocket course development and administrative costs, facilities charges,
and related travel and lodging. RE-ENGINEERING IMPLEMENTATION costs are
incremental costs to complete re-engineering initiatives.
CURRENT STATUS
At December 31, 1995, the actual 1994 and 1995
utilization of reserves and the revised expectation for 1996 are as follows:
(In millions) 1994 1995 1996 Total
- --------------------------------------------------------------------------------
Systems redesign $108 $207 $61 $376
Work center
consolidation 27 51 43 121
Branding 21 11 1 33
Relocation -- 3 2 5
Training -- 6 12 18
Re-engineering
implementation 43 27 3 73
- --------------------------------------------------------------------------------
Total $199 $305 $122 $626
- --------------------------------------------------------------------------------
SYSTEMS REDESIGN: During 1994, it was determined that systems redesign would
require a larger than anticipated upfront effort to fully integrate interfaces
between various systems and permit development of multi-tasking capabilities. A
higher degree of complexity and additional functionality required by real-time,
interactive systems contributed to the increase. During 1995, systems estimates
increased due to the complexity and extensiveness of integration testing and
quality assurance processes. Approximately $84 and $44 million relating to
software systems that were addressed by the restructure plan but not
specifically provided for in the 1993 accrual was expensed in 1995 and 1994,
respectively.
The actual 1994 and 1995 utilization and the revised expected utilization in
1996 of the systems redesign reserves, by business process, are as follows:
(In millions) 1994 1995 1996 Total
- --------------------------------------------------------------------------------
Customer contact $ 52 $109 $30 $191
Customer provisioning 11 21 -- 32
Customer operations 19 44 26 89
Customer support 26 33 5 64
- --------------------------------------------------------------------------------
Total $108 $207 $61 $376
- --------------------------------------------------------------------------------
WORK CENTER CONSOLIDATION was revised in 1994 for an increase in the number of
work centers from what was originally planned based on union agreements. The
revised estimate for 1996 is based on actual costs incurred to date and reflects
the completion of the majority of the planned work centers. Relocation of
employees was revised downward in 1994 due to the increase in the number of work
centers and terms of the union agreements. At the end of 1995, the majority of
the work centers are complete. TRAINING was delayed in 1994 due to the timing of
the union agreements and the higher degree of complexity of systems redesign;
total expected costs were decreased due to the planned use of more in-house
training. Training was accomplished in 1995 through in-house, on-the-job and
multi-media training. RE-ENGINEERING IMPLEMENTATION is winding down and will be
reported with the related projects in 1996.
OTHER RESTRUCTURING CHARGES
Approximately $283 million of the 1993 restructuring charges ($271 million
after-tax) related to NYNEX's sale or discontinuance of its information products
and services businesses, including the sale of AGS Computers, Inc. ("AGS") and
several of its business units and The BIS Group Limited ("BIS"). These charges
included the write-off of the net book value of the businesses and estimated
provision for future operating losses and disposal costs. NYNEX utilized $22,
$62 and $185 million in 1995, 1994 and 1993, respectively, of these
restructuring reserves. It is expected that the remaining balance of $14 million
will be utilized in 1996.
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Management's Discussion and Analysis 13
- --------------------------------------------------------------------------------
An additional $106 million ($69 million after-tax) was recorded in 1993 for
write-offs of assets and accrual of loss contingencies directly associated with
restructuring at other nontelephone subsidiaries. These reserves were not
utilized in 1995, but were utilized in 1994 and 1993 in the amounts of $51
(primarily for the disposition of NYNEX Properties Company) and $9 million,
respectively. It is estimated that the remaining balance of $46 million will be
substantially utilized in 1996.
FUTURE CASH EFFECTS AND COST SAVINGS
The 1993 restructuring charges had anticipated approximately $550 million in
cash outflows during the three-year period from 1994 through 1996 for severance
and re-engineering costs. In 1994, NYNEX implemented retirement incentives and
no longer expects to incur significant severance costs for the planned work
force reductions. Cash outflows for 1993 re-engineering accruals are expected to
total approximately $395 million ($125, $191, and $79 million in 1994, 1995, and
1996, respectively). Noncash restructuring charges include the pension
enhancements, postretirement medical costs, charges related to discontinuance of
information products and services businesses, and write-offs of assets at other
nontelephone subsidiaries. Capital expenditures for 1994 through 1996 are
expected to total approximately $560 million ($170, $230 and $160 million in
1994, 1995, and 1996, respectively), primarily related to systems re-engineering
and work center consolidation. Over time, it is anticipated that savings
generated by restructuring will provide the funds required, and any short-term
cash flow needs will be met through NYNEX's usual financing channels.
Since the inception of process re-engineering and the special pension
enhancement program in 1994, approximately 11,900 employees have accepted the
retirement incentives. On an annualized basis, this will equate to an average
reduction in wages and benefits of approximately $650 million. Partially
offsetting these cost savings will be the effects of wage and price inflation,
growth in volume of business and higher costs attributable to service
improvements.
It is anticipated that the restructuring will result in reduced costs during the
period of restructuring and reduced annual operating expenses of approximately
$1.7 billion beginning in 1997. These savings include approximately $1.1 billion
in reduced wage and benefit expenses due to lower work force levels, and
approximately $600 million in non-wage savings including reduced rent expense
for fewer work locations and lower purchasing costs. Partially offsetting these
savings are higher costs due to inflation and growth in the business.
RESULTS OF OPERATIONS
- ---------------------
NYNEX reported a net loss for the year ended December 31, 1995 of $(1.8)
billion, or $(4.34) per share. Net income for the year ended December 31, 1994
was $792.6 million, or $1.89 per share. The net loss for the year ended December
31, 1993 was $(394.1) million, or $(.95) per share.
The net loss for 1995 includes an extraordinary charge and non-recurring charges
and credits totaling $3.2 billion after-tax, or $7.61 per share. Included in
this amount are: an extraordinary charge of $2.9 billion, or $6.84 per share,
for the discontinuance of Statement of Financial Accounting Standards No. 71
("Statement No. 71") (see Note B); charges of $549.5 million, or $1.29 per
share, for non-recurring items and for pension enhancements; a gain of $155.1
million, or $.36 per share, as a result of an initial public offering ("IPO") of
NYNEX's UK cable business (see Note J); and a net gain of $67.4 million, or $.16
per share, from the sale of certain cellular properties as a result of the
formation of the Bell Atlantic NYNEX Mobile cellular partnership ("BANM") (see
Note F). Results for 1994 include an after-tax charge of $452.8 million, or
$1.08 per share, for pension enhancements. Adjusting for these items, 1995 net
income was $1.4 billion, an increase of 12.1% over 1994. Results for 1993
include after-tax charges of $1.6 billion, or $3.95 per share, for business
restructuring and other charges. Adjusting for these charges, 1993 net income
was $1.2 billion.
OPERATING REVENUES for 1995 were $13.4 billion, an increase of $100.3 million,
or .8%, over 1994. Included in this increase were changes in presentation in
1995 of gross receipts tax and revenues from NYNEX Mobile Communications Company
("NYNEX Mobile") as a result of the BANM cellular partnership (see Note A).
Adjusting for these items, operating revenues increased 3.8% to $13.1 billion.
Revenues from the telephone subsidiaries and Telesector Resources Group, Inc.
(collectively, the "telecommunications group") increased 3.0% to $11.9 billion,
and revenues from NYNEX's other subsidiaries (the "nontelephone subsidiaries")
increased 11.6%, to $1.2 billion. Supporting the telecommunications group's
revenue growth were a 3.4% growth in access lines and an 8.6% increase in access
usage over last year.
<PAGE>
- --------------------------------------------------------------------------------
14 Management's Discussion and Analysis NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
Operating revenues for 1994 were $13.3 billion, a decrease of $101.2 million, or
.8%, from 1993. Included in this decrease were changes in presentation of
revenues from NYNEX Mobile and from information products and services businesses
that were sold in 1993 and 1994. Adjusting for these items, operating revenues
increased .4% to $12.6 billion. Revenues from the nontelephone subsidiaries
increased 6.4% to $1.1 billion, supported by growth in NYNEX CableComms'
customer base. Revenues from the telecommunications group were essentially flat
at $11.5 billion, due principally to a revenue reduction ordered by the New York
State Public Service Commission ("NYSPSC").
OPERATING EXPENSES for 1995 were $11.3 billion, a decrease of $235.7 million, or
2.0%, from 1994. Included in this decrease (and as described below) were:
pension enhancement charges in both periods; non-recurring net charges in 1995;
and changes in presentation in 1995 of gross receipts tax and expenses from
NYNEX Mobile as a result of the BANM cellular partnership (see Note A).
Adjusting for these items, operating expenses were $10.3 billion, an increase of
$93.8 million, or .9%. At the telecommunications group, operating expenses
increased $8.1 million, or .1%, and at the nontelephone subsidiaries, operating
expenses increased $85.7 million, or 9.8%.
Operating expenses for 1994 were $11.6 billion, a decrease of $1.5 billion, or
11.7%, from 1993. Included in this decrease (and as described below) were:
business restructuring and other charges in 1993; pension enhancement charges in
1994; and changes in presentation of expenses from NYNEX Mobile and from
information products and services businesses that were sold in 1993 and 1994.
Adjusting for these items, operating expenses were $10.2 billion, an increase of
$122.7 million, or 1.2%. At the telecommunications group, operating expenses
increased $119.6 million, or 1.3%, and at the nontelephone subsidiaries,
operating expenses were essentially flat.
OPERATING INCOME, adjusting for non-recurring items and the year-over-year
change in the operating income of NYNEX Mobile, was $2.8 billion in 1995, an
increase of $381.9 million, or 15.9%. Operating margin for 1995 improved 2.2
percentage points to 21.3% from 19.1%. This improvement resulted from increased
productivity as adjusted expense growth of .9% was outpaced by adjusted revenue
growth of 3.8%.
Operating income, adjusting for non-recurring items and the year-over-year
changes in the operating income of NYNEX Mobile and the information products and
services businesses that were sold, was $2.4 billion in 1994, a decrease of
$73.0 million, or 3.0%. Operating margin for 1994 declined to 19.1% from 19.7%,
resulting from adjusted expense growth of 1.2% exceeding adjusted revenue growth
of .4%.
OPERATING REVENUES
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Local service $ 6,722.2 $ 6,605.4 $ 6,472.9
Long distance 1,039.2 1,081.2 1,134.4
Network access 3,557.5 3,447.0 3,387.2
Other 2,088.0 2,173.0 2,413.3
- --------------------------------------------------------------------------------
Total operating revenues $13,406.9 $13,306.6 $13,407.8
- --------------------------------------------------------------------------------
LOCAL SERVICE revenues increased $116.8 million, or 1.8%, in 1995 due primarily
to a net $164 million increase in demand driven by growth in access lines and
sales of calling features. This increase was partially offset by $35 million in
rate reductions in New York and Maine, an $8 million decrease attributable to
potential customer billing claims at New York Telephone, and a $5 million
decrease due to the 1994 reversal of previously deferred revenues in Rhode
Island.
Local service revenues increased $132.5 million, or 2.0%, in 1994 due primarily
to: a net $240 million increase in demand driven by growth in access lines,
sales of calling features and higher usage associated with winter storms, and a
$23 million increase in rates due to a rate restructuring in Massachusetts
(offset by decreases in long distance rates mentioned below), partially offset
by a $135 million revenue reduction pursuant to an NYSPSC order.
LONG DISTANCE revenues decreased $42.0 million, or 3.9%, in 1995 due primarily
to: $24 million in required rate reductions at New England Telephone; $7 million
in price reductions in New Hampshire; and a decrease in demand for wide area
telecommunications services as a result of customer shifts to lower priced
services offered by the telephone subsidiaries and increased competition. It
should be noted that certain competitive losses in long distance revenues are
mostly offset by increases in network access revenues.
Long distance revenues decreased $53.2 million, or 4.7%, in 1994 due primarily
to: $25 million in rate decreases due to the previously mentioned Massachusetts
rate restructuring; $8 million in price reductions in New Hampshire; a $13
million revenue
<PAGE>
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NYNEX 1995 Annual Report Management's Discussion and Analysis 15
- --------------------------------------------------------------------------------
reduction pursuant to an NYSPSC order; a $12 million shift in interstate toll
revenues from long distance to network access at New York Telephone; and the
previously mentioned decrease in demand for wide area telecommunications
services. These decreases were partially offset by increased demand for message
toll services.
NETWORK ACCESS revenues increased $165.7 million, or 4.8%, in 1995 excluding a
$55.2 million decrease attributable to a change in the presentation of gross
receipts tax collected by New York Telephone on behalf of interexchange
carriers. (In the third quarter of 1995, as a result of a change in tax law, New
York Telephone was no longer required to pay gross receipts tax to New York
State on interstate access revenues. Prior to this change, these taxes were
collected from interexchange carriers and remitted to the taxing authority and
were included in both operating revenues and operating expenses) (see OPERATING
EXPENSES.) The increase in Network access revenues resulted from a $157 million
increase in interstate demand partially offset by a $29 million reduction in
interstate rates, and a $44 million increase in intrastate demand partially
offset by a $10 million reduction in intrastate rates.
Network access revenues increased $59.8 million, or 1.8%, in 1994. There was a
$127 million increase in interstate demand partially offset by a $69 million
reduction in interstate rates, and a $21 million increase in intrastate demand
offset by a $24 million reduction in intrastate rates. In addition, there was a
$12 million increase at New York Telephone due to the aforementioned shift in
interstate toll revenues and a $12 million recognition of previously deferred
revenues, partially offset by a $12 million revenue reduction pursuant to an
NYSPSC order.
OTHER revenues increased $235.2 million, or 16.2%, in 1995, after adjusting for
a $320.2 million decrease associated with the July 1, 1995 deconsolidation of
NYNEX Mobile due to the formation of the BANM cellular partnership (see Note A)
($399.8 million for six months of 1995 compared with $720.0 million for twelve
months of 1994). The increase of $235.2 million reflects the following: NYNEX
CableComms revenues increased $70.2 million, more than doubling, due to
significant increases in cable television customers and in residence and
business telecommunication lines. NYNEX Information Resources revenues increased
$48.7 million, or 5.4%, due primarily to increased Yellow Pages advertising
revenues, from both domestic and international directories. Telecommunications
revenues increased $110.2 million, due to the following at New York Telephone:
(1) $109.2 million due to the cessation of "setting aside" revenues in the
second quarter of 1995 as a result of an NYSPSC order approving a
performance-based regulatory plan (the "Plan"), (2) $10 million due to the
elimination of the deferral of intrastate revenues as a result of the
discontinuance of regulatory accounting principles (see Note B), (3) $4.5
million from revenues earned under a service improvement plan implemented in
1994 and (4) $5 million recognized in connection with intraLATA presubscription
("ILP") commitments that were met in 1995. These increases were partially offset
by a $22 million decrease in billing and collection revenues pursuant to a
contract with AT&T Corp.
With respect to (1) above, future quarters will no longer reflect the setting
aside of revenues of $38 million per quarter experienced in 1994 and early 1995.
At December 31, 1995, $188 million of revenues remains deferred ($161 million
pursuant to the Plan and $27 million pursuant to the service improvement plan)
and will be recognized as commitments are met or obligations are satisfied (see
STATE REGULATORY).
Other revenues decreased $89.4 million, or 5.8%, in 1994, after adjusting for a
$279.5 million increase associated with the deconsolidation of NYNEX Mobile
($720.0 million for 1994 compared with $440.5 million for 1993) and a $430.4
million decrease associated with the sale of information products and services
businesses. The decrease of $89.4 million reflects the following:
Telecommunications revenues decreased $153.8 million, due principally to a $153
million revenue reduction ordered by the NYSPSC. NYNEX Information Resources
revenues increased $22.2 million, or 2.5%, reflecting higher Yellow Pages
advertising revenues and increased revenues from the publication of directories
in the Czech Republic. NYNEX CableComms revenues increased $37.0 million, more
than doubling in 1994.
OPERATING EXPENSES
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
$11,314.7 $11,550.4 $13,074.5
- --------------------------------------------------------------------------------
OPERATING EXPENSES for 1995 were $11.3 billion, a decrease of $235.7 million, or
2.0%, from 1994. Included in this decrease (as discussed below) were: pension
enhancement charges in both periods; non-recurring net charges in 1995; and
changes in
<PAGE>
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16 Management's Discussion and Analysis NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
presentation in 1995 of gross receipts tax and expenses from NYNEX Mobile as a
result of the BANM cellular partnership. Adjusting for these items, operating
expenses were $10.3 billion, an increase of $93.8 million, or .9%.
Operating expenses for 1994 were $11.6 billion, a decrease of $1.5 billion from
1993. Included in this decrease (as discussed below) were: business
restructuring and other charges in 1993; pension enhancement charges in 1994;
and changes in presentation of expenses from NYNEX Mobile and from information
products and services businesses that were sold. Adjusting for these items,
operating expenses were $10.2 billion, an increase of $122.7 million, or 1.2%.
Operating expenses included pretax pension enhancement charges of $514.1 million
and $693.5 million in 1995 and 1994, respectively. The non-recurring net charges
in 1995 included: (1) accruals of $291.5 million related to various
self-insurance programs, legal and regulatory contingencies, operating tax
provisions and revised benefit charges, reflecting events that occurred in 1995
and additional information made available through revised estimates and analyses
completed during 1995, and (2) a $53.5 million net expense reduction resulting
primarily from the recognition of a pension curtailment gain and certain
non-recurring charges associated with the formation of the BANM cellular
partnership (see Note F). There was a $55.2 million change in presentation in
1995 of gross receipts tax collected by New York Telephone on behalf of
interexchange carriers (see NETWORK ACCESS revenues), and a $332.9 million
decrease associated with the deconsolidation of NYNEX Mobile as a result of the
BANM cellular partnership (see Note A) ($336.2 million for six months of 1995
compared with $669.1 million for twelve months of 1994).
At the telecommunications group, operating expenses were $9.3 billion in 1995,
an increase of $8.1 million, or .1%. Employee related costs increased $9.5
million in 1995. Higher salaries and wages resulting primarily from wage rate
and volume-related increases were substantially offset by reductions in the work
force and lower benefit costs (including revised estimates associated with
workers compensation accruals). Offsetting these increases was a $1.4 million
net decrease in non-employee costs, primarily as a result of decreases in
depreciation and amortization (see Note B) offset by increases in bad debt
expense, advertising and marketing costs, and gross receipts taxes (primarily
from a tax settlement at New York Telephone).
At the nontelephone subsidiaries, operating expenses were $959.9 million in
1995, an increase of $85.7 million, or 9.8%. This increase was almost entirely
due to the expansion of NYNEX CableComms.
Operating expenses for 1994 included pretax pension enhancement charges of
$693.5 million. Operating expenses for 1993 included business restructuring and
other charges of $2.2 billion. There was a $290.5 million increase associated
with the deconsolidation of NYNEX Mobile ($669.1 million for 1994 compared with
$378.6 million for 1993) and a $435.1 million decrease associated with the sale
of information products and services businesses.
At the telecommunications group, operating expenses were $9.3 billion in 1994,
an increase of $119.6 million, or 1.3%. Employee related costs increased $38.0
million in 1994. Higher salaries and wages resulting from wage rate increases,
single enterprise employee transfers, and volume-related increases were
partially offset by reductions in the work force and lower benefit costs. In
addition, there was an $81.6 million increase in non-employee costs, primarily
as a result of increases in depreciation and amortization, bad debt expense, and
contracted services, partially offset by decreases in property taxes.
GAIN ON SALE OF STOCK BY SUBSIDIARY
An IPO of the shares of NYNEX CableComms Group PLC ("UK CableComms") and NYNEX
CableComms Group Inc. ("US CableComms") (collectively, "CableComms") was
completed in June 1995. The offering represented 33% of the total units
outstanding, with NYNEX retaining the balance. Net proceeds from the offering
were approximately $610 million. NYNEX recognized a pretax gain of $264.1
million in recognition of the net increase in the value of NYNEX's investment in
CableComms (see Note J).
OTHER INCOME (EXPENSE) - NET
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
$(4.9) $(43.8) $(97.0)
- --------------------------------------------------------------------------------
OTHER INCOME (EXPENSE) - NET for 1995 improved $38.9 million over 1994. The
principal components of this change were a $70.3 million non-recurring gain on
the sale of cellular properties in connection with the formation of the BANM
cellular partnership (see Note F), partially offset by a $26.7 million increase
in minority interest expense and $17.4 million from unrealized "mark to market"
valuation adjustments (see FINANCIAL INSTRUMENTS).
<PAGE>
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NYNEX 1995 Annual Report Management's Discussion and Analysis 17
- --------------------------------------------------------------------------------
Other income (expense) - net for 1994 improved $53.2 million over 1993. The
principal components of this change were: in 1993, $84 million was expensed for
the interstate portion of call premiums and other charges associated with the
refinancing of long-term debt, partially offset by an $11 million increase in
minority interest expense in 1994.
INTEREST EXPENSE
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
$733.9 $673.8 $659.5
- --------------------------------------------------------------------------------
INTEREST EXPENSE for 1995 increased $60.1 million, or 8.9%, over 1994 due
primarily to higher average interest rates of 7.2% compared to 6.5% in 1994. The
higher average interest rates are due to increased short-term rates and a
lengthening in the maturity of the debt portfolio in the latter half of 1994
(77% long-term in 1995 compared to 70% in 1994). Total debt remained essentially
flat at $9.8 billion. This increase in interest expense was partially offset by
a reversal in 1995 of $14 million of previously recorded interest on the revenue
set aside as ordered by the NYSPSC (see STATE REGULATORY).
Interest expense for 1994 increased $14.3 million, or 2.2%, over 1993 due
primarily to an increase in average debt levels from $8.7 billion in 1993 to
$9.7 billion. However, total debt decreased $214.6 million to $9.9 billion (see
CASH FLOWS FROM FINANCING ACTIVITIES). Average interest rates declined from 7.3%
in 1993 to 6.5% primarily as a result of long-term debt refinancings throughout
1993.
INCOME (LOSS) FROM LONG-TERM INVESTMENTS
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
$ 92.9 $ 57.7 $(21.9)
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM LONG-TERM INVESTMENTS for 1995 improved $35.2 million, or
61.0%, over 1994. This increase was due primarily to equity income of $90.7
million from the BANM cellular partnership (see Note F), partially offset by
losses from investments in the Tele-TV Partnerships, FLAG Limited ("FLAG") and
PCS Primeco.
Income (loss) from long-term investments for 1994 improved $79.6 million over
1993, principally as a result of $53 million of dividends received in 1994 from
Viacom Inc. ("Viacom") and the $31 million effect of restructuring charges on
1993 amounts.
INCOME TAXES
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
$640.9 $303.7 $(172.7)
- --------------------------------------------------------------------------------
INCOME TAXES for 1995 increased $337.2 million over 1994, attributable primarily
to an increase in pretax income of $614.1 million, or 56.0%, and a five
percentage point increase in the effective tax rate for 1995 primarily
reflecting the discontinued application of Statement No. 71 and a $71.7 million
deferred tax valuation allowance benefit in 1994.
Income taxes for 1994 increased $476.4 million over 1993, attributable primarily
to an increase in pretax income of $1.5 billion in 1994 and a reduction in the
effective tax rate for 1994 reflecting a $71.7 million reduction in the deferred
tax valuation allowance.
EXTRAORDINARY ITEM
The discontinued application of Statement No. 71 required NYNEX, for financial
accounting purposes, to adjust the carrying amount of telephone plant and
equipment and to eliminate non-plant regulatory assets and liabilities from the
balance sheet. This change resulted in an after-tax charge of $2.9 billion,
consisting of $2.2 billion to adjust telephone plant and equipment and $0.7
billion to write off non-plant regulatory assets and liabilities. NYNEX now
utilizes shorter asset lives for certain categories of telephone plant and
equipment than those previously approved by regulators. The elimination of the
amortization of net regulatory assets and the effects of certain changes in
accounting policies are not expected to have a significant impact on financial
results in future periods (see Note B).
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Management believes that NYNEX has adequate internal and external resources
available to finance ongoing operating requirements, business development,
network expansion, and new investments for the foreseeable future.
During 1995, net cash used in investing activities exceeded net cash provided by
operating activities by $218.1 million. This difference was funded primarily by
IPO and minority interest proceeds and equity issuances.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $3.6, $3.7 and $3.7 billion in
1995, 1994 and 1993, respectively. In 1995, cash provided by operating
activities
<PAGE>
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18 Management's Discussion and Analysis NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
decreased $51.9 million. Net income excluding the extraordinary item and gain on
an IPO of shares of CableComms was essentially flat. Depreciation and
amortization expense decreased $73.8 million, primarily at the
telecommunications group as discussed above. Changes in operating assets and
liabilities provided $20.9 million of cash flows in 1995 over 1994, primarily as
a result of increased trade payables partially offset by increased accounts
receivable. Costs associated with re-engineering activities reserved for in 1993
resulted in cash outlays of $191 million in 1995 and $125 million in 1994.
Pension enhancement charges in 1995 and 1994 did not materially affect operating
cash flows when recorded since the cash outflows will be incurred primarily by
the NYNEX Pension Plans in future years.
In 1994, cash provided by operating activities increased $49.5 million. Net
income decreased $442.5 million from 1993, after excluding $1.6 billion due to
1993 business restructuring and other charges. Depreciation and amortization
expense increased $106.6 million, primarily at the telecommunications group as
discussed above. Changes in operating assets and liabilities provided $203.4
million of cash flows in 1994 over 1993, primarily as a result of decreased
accounts receivable and prepaid expenses, partially offset by decreased trade
payables.
Excluding the effects of restructuring charges, Management anticipates cash
provided by operating activities in 1996 to increase, primarily as a result of
earnings growth.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities was $3.9, $3.2 and $4.3 billion in 1995,
1994 and 1993, respectively.
CAPITAL EXPENDITURES in 1995 were $3.2 billion, an increase of $175.9 million
over 1994. Rapid buildout of the cable television/telecommunications network in
the United Kingdom continued. The largest component of capital expenditures
continues to be for the telephone subsidiaries. These capital expenditures
continued at the same level over the three-year period, funded primarily through
cash generated from operations, and it is anticipated that 1996 capital
expenditures will be similarly funded. Total capital expenditures in 1996 are
projected to remain at a level comparable to 1995.
Capital expenditures in 1994 were $3.0 billion, an increase of $295.0 million
over 1993 for the construction and upgrade of mobile cell sites and the
continued buildout of the cable television/telecommunications network in the
United Kingdom.
INVESTMENT IN LEASED ASSETS: In 1995, the $71.6 million increase in investments
in leased assets was the result of increased activity in the middle market
portfolios at NYNEX Credit Company ("Credit Company").
In 1994, decreased investments in leased assets were the result of heightened
competition in the leasing market.
OTHER INVESTING ACTIVITIES: In 1995, cash flows from other investing activities
- - net were $518.3 million, $474.7 million higher than in 1994 as a result of
investments in: PCS Primeco (a venture to provide national wireless
communications services), BANX Partnership (a partnership formed to invest in
wireless cable systems), Bayan Telecommunications Holdings Corporation, the
Tele-TV Partnerships, FLAG and P.T. Excelcomindo Pratama and from the effect of
cash received in 1994 from the exit from the information products and services
business, partially offset by $90 million of cash received from the sale of
cellular properties overlapping with Bell Atlantic Corporation's cellular
properties prior to the formation of BANM.
In 1994, cash flows from other investing activities - net were $43.6 million,
$1.3 billion lower than in 1993. NYNEX did not make any significant long-term
investments in 1994. In 1993, cash outflows resulted from a $1.2 billion
investment in Viacom and investments in: Orient Telecom & Technology Holdings
Ltd. (to develop telecommunications opportunities in China), STET Hellas (a
Greek cellular project) and an additional investment in TelecomAsia Corporation
Public Company Limited (for a network expansion project in Thailand).
CASH FLOWS FROM FINANCING ACTIVITIES
SHORT-TERM AND LONG-TERM DEBT: Total debt was essentially flat in 1995 as
compared to 1994. The debt ratio increased to 61.8% as of December 31, 1995,
compared with 52.9% as of December 31, 1994, primarily as a result of the $2.9
billion after-tax extraordinary charge which reduced equity.
During 1995, commercial paper decreased as a result of using the proceeds from
the monetization of a portion of NYNEX's investment in Viacom Preferred Stock
(see VIACOM below). Credit Company issued $135 million of medium-term notes.
During 1994, commercial paper and short-term debt decreased a net $1.7 billion,
due primarily to the repayment of commercial paper through the issuance of
long-term debt. New York Telephone issued $450 million in debentures and $150
million in notes
<PAGE>
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NYNEX 1995 Annual Report Management's Discussion and Analysis 19
- --------------------------------------------------------------------------------
and used the proceeds to repay short-term borrowings from NYNEX. The proceeds
were, in turn, used by NYNEX to repay commercial paper borrowings. NYNEX Capital
Funding Company ("CFC") issued $863 million of medium-term notes in order to
reduce NYNEX's commercial paper requirements. It is estimated that these
refinancings will continue to result in an annual interest savings of
approximately $62 million for the next two years, with savings thereafter
varying as debt matures.
Total debt decreased $214.6 million in 1994 as compared to 1993. The debt ratio
decreased to 52.9% as of December 31, 1994, compared with 53.9% as of December
31, 1993, primarily as a result of the $1.6 billion after-tax business
restructuring and other charges which reduced equity.
The majority of the telephone subsidiaries' refinancing charges in 1993,
including call premiums, were deferred and amortized for intrastate rate-making
purposes and were subsequently eliminated as a result of the discontinuance of
Statement No. 71.
ISSUANCE OF COMMON STOCK: In 1995, 1994 and 1993, NYNEX continued to issue
common stock for employee savings plans, the Dividend Reinvestment and Stock
Purchase Plan ("DRISPP"), stock compensation plans, and employee stock option
plans. These issuances increased equity by approximately $333 million in 1995,
$320 million in 1994, and $128 million in 1993. The noncash issuance of stock,
primarily for dividends in connection with DRISPP, is $110, $107, and $30
million, respectively. The dividends for common stock remained unchanged at
$2.36 per share in 1995, 1994 and 1993.
PURCHASE OF TREASURY STOCK: In October 1994, NYNEX granted additional stock
options in connection with the employee stock option plans established in 1992.
NYNEX purchased treasury stock in 1993 and released shares into the open market
as stock options were exercised. In November 1995, NYNEX began issuing new
shares of its common stock as stock options were exercised.
MINORITY INTEREST: Financing cash flows in 1995 included net funds of $289.2
million primarily provided by a minority interest in the financing structures
formed in December 1993 and 1994 for the network construction program in the
United Kingdom and by the monetization proceeds (see VIACOM below). Financing
cash flows in 1994 included net funds of $359.2 million primarily provided by a
minority interest in the financing structures formed in the United Kingdom.
PROCEEDS FROM THE SALE OF STOCK BY SUBSIDIARY-NET: During the second quarter of
1995, $610 million of proceeds were received from the IPO of CableComms (see
below).
CURRENT AND FUTURE FINANCING STRATEGIES
CABLECOMMS: NYNEX CableComms is constructing and operating a $3 billion
broadband (high capacity) network, to be substantially completed by 1997, for
the provision of cable television and telecommunications services in certain
licensed areas in the United Kingdom.
During 1993 (for licensed areas in the Southern United Kingdom or "South") and
1994 (for licensed areas in the Northern United Kingdom or "North"), NYNEX
entered into a series of financing transactions that coupled a financing
partnership and limited liability companies for funding construction of up to
$425 million in the South and up to $1.1 billion in the North, for a total of up
to $1.5 billion (as these loans are denominated in pounds sterling, these
amounts are based on applicable year-end exchange rates). In connection with the
financing of the South and North, NYNEX has provided certain guarantees and
indemnifications to the financing partnership and limited liability companies
regarding the completion of the construction program and any breach of the
agreements due to events prior to the creation of the entities. This type of
financing could provide significant additional funds over the first five years
of each financing to help complete the funding of NYNEX CableComms' network.
Management anticipates having sufficient funds, either from these or other
funding sources, to complete construction of the network.
During February 1995, two entities were formed: a UK public limited liability
company (UK CableComms) and a Delaware corporation (US CableComms). The sole
assets of UK CableComms and US CableComms are 90% and 10%, respectively, of the
outstanding stock of NYNEX CableComms Holdings, Inc. which holds, through
various subsidiaries and partnerships, interests in cable television and
telecommunications franchises, assets and operations in the United Kingdom.
An IPO was completed in June 1995 of 305 million equity units of CableComms.
These units are traded as "stapled units" and are comprised of one ordinary
share of UK CableComms and one share of common stock of US CableComms (the
"Combined Offering"). The Combined Offering represented 33% of the total units
outstanding, with NYNEX
<PAGE>
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20 Management's Discussion and Analysis NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
retaining the balance. Net proceeds from the offering were approximately $610
million. CableComms is using the proceeds to repay outstanding revolving loans
under credit facilities, to fund a portion of the cost of construction of its
network, and for operating cash flow and interest.
VIACOM: In December 1995, NYNEX entered into a contract for the non-recourse
securitization that permits a monetization of approximately 50% of its
investment in the Viacom Series B Cumulative Preferred Stock, of which 8% was
implemented in 1995. NYNEX realized proceeds of $100 million from this
monetization which were used to reduce outstanding commercial paper.
The term of the monetization transaction is five years at which time the third
party interest that provided the funding for this transaction will be redeemed
through the sale of the assets securitizing this transaction. Under the terms of
an extension agreement, NYNEX has the ability and intends to increase the amount
of monetization up to $600 million by March 31, 1996 under terms and conditions
that are substantially the same as the December 1995 transaction. NYNEX may,
upon meeting certain funding requirements, elect to purchase the third party
interests or terminate the transaction and cause the liquidation of the
securitized assets.
At December 31, 1995, NYNEX had $950 million of unissued, unsecured debt and
equity securities registered with the Securities and Exchange Commission (the
"SEC"). The proceeds from the sale of these securities would be used to provide
funds to NYNEX and/or NYNEX's nontelephone subsidiaries for their respective
general corporate purposes. At December 31, 1995, CFC had $637 million of
unissued medium-term debt securities registered with the SEC. When issued, these
securities will be guaranteed by NYNEX. The proceeds from the sale of these
securities may be used to provide financing for NYNEX and the nontelephone
subsidiaries. At December 31, 1995, New England Telephone and New York Telephone
had $500 and $250 million, respectively, of unissued, unsecured debt securities
registered with the SEC.
In the third quarter of 1995, an independent bond rating agency lowered its
rating of the long-term debt of NYNEX Corporation, which includes Credit Company
and CFC. The bond ratings of New York Telephone and New England Telephone were
reaffirmed at current levels, but the rating outlook on New England Telephone
was placed on negative outlook by the agency. However, Management believes that
the bond ratings are indicative of strong credit support for timely principal
and interest payments in the foreseeable future.
On November 10, 1995 NYNEX and Credit Company entered into a $2.75 billion
unsecured revolving credit facility, with Chemical Bank as the administrative
agent. (Credit Company may borrow up to $300 million under this facility.)
Further, NYNEX may request an increase in the aggregate commitments under the
facility of up to $500 million. The initial term is for five years, but the
borrowers may request two extensions of the facility, in each case for an
additional year. Currently, a fee of .075% per annum is paid by NYNEX on the
aggregate outstanding commitments. Under the terms of the agreement, the
proceeds may be used to fund working capital and/or any lawful corporate
purposes, including support of outstanding commercial paper. NYNEX had no
borrowings under this credit facility at December 31, 1995. However, $1.9
billion of outstanding commercial paper borrowings was classified as Long-term
debt at December 31, 1995 because NYNEX has the intent to refinance the
commercial paper borrowings on a long-term basis and has the ability to do so
under the credit facility.
The venture between NYNEX, Bell Atlantic Corporation, AirTouch Communications
Inc. and U S WEST Inc. is comprised of two partnerships, one of which, PCS
Primeco, participated in the FCC auction of personal communications services
("PCS") licenses and bid a total of approximately $1.1 billion for licenses in
eleven cities, of which NYNEX's portion was approximately $277 million. The bid
was paid upon grant of the licenses and final review of bidder qualifications by
the FCC in June of 1995. NYNEX's portion of the bid was funded through the
issuance of commercial paper. In 1996, the venture plans to continue to build
markets and build out the network for prospective offering of services to
customers.
FINANCIAL INSTRUMENTS
Financial Risk Management
- -------------------------
NYNEX has entered into transactions involving the use of
derivative instruments as part of its financial risk management program. The
purpose of this program is to manage NYNEX's aggregate financial risk and to
protect against adverse changes in foreign exchange rates, interest rates, and
other prices or rates, and to otherwise facilitate NYNEX's
<PAGE>
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NYNEX 1995 Annual Report Management's Discussion and Analysis 21
- --------------------------------------------------------------------------------
financing strategy, without holding or issuing any financial instruments solely
for trading purposes.
The derivative instruments used to manage these risks may be separated into
three fundamental types: forwards, options and swaps. NYNEX assesses financial
exposures and matches its derivative positions accordingly. Liquidity and
results of operations are not expected to be, but may be, materially affected by
NYNEX's financing strategy, a portion of which is accomplished through the
aforementioned risk management program.
NYNEX's use of derivatives for risk management purposes is represented by
notional amounts. These notional values solely represent contractual amounts
that serve as the basis or reference amount upon which contractually stipulated
calculations are based. Therefore, these amounts are intended to serve as
general volume indicators only and are not indicative of the potential gain or
loss from market or credit risks, or future cash requirements. At December 31,
1995 and 1994, NYNEX had derivative transactions maturing between 1995 and 2004
with notional amounts as follows (categorized by the type of risk being
managed):
(In millions) 1995 1994
- --------------------------------------------------------------------------------
Basis swaps/Swaptions $1,001.0 $1,001.0
Foreign currency/Interest rate swaps 928.4 928.4
Foreign currency forwards (short dated) 556.3 --
Interest rate swaps/Caps 279.2 285.9
Foreign currency swaps/Other 60.0 61.5
Structured note swaps 55.0 55.0
- --------------------------------------------------------------------------------
Total $2,879.9 $2,331.8
- --------------------------------------------------------------------------------
BASIS SWAPS: In 1993, NYNEX entered into J.J.Kenny/ LIBOR basis swaption
agreements as part of a risk management program to protect against the effect of
increased corporate tax rates on Credit Company's leveraged lease portfolio.
NYNEX received approximately $12 million of premiums on the basis swaption
agreements, which were exercised in January of 1994. The recording of these
basis swaps at fair market value as of December 31, 1995 resulted in an
unrealized mark to market adjustment of approximately $17.4 million net of
previously unamortized premium, which is included in Other income (expense) -
net in the consolidated financial statements.
Foreign Exchange Risk and
- -------------------------
Interest Rate Risk Management
- -----------------------------
FOREIGN CURRENCY/INTEREST RATE SWAPS: NYNEX hedges the US Dollar value of many
of its international investments. In some cases, direct borrowings in the
foreign currency are used. In other cases, NYNEX uses derivatives to create
synthetic non-US Dollar denominated debt, thereby hedging or funding these
investments more cost-effectively and with greater flexibility. Generally these
transactions involve a derivative contract which includes both interest rate and
foreign currency components. With respect to the foreign currency components,
cumulative net gains of $7.4 and $5.9 million at December 31, 1995 and 1994,
respectively, have been recorded as direct adjustments to Stockholders' equity.
In connection with managing the cost associated with the currency components,
the interest rate swap components generally require NYNEX to receive interest at
a fixed rate averaging approximately 3.4% and 3.3% as of December 31, 1995 and
1994, respectively, and to pay a floating interest rate (three-month or
six-month LIBOR) which averaged approximately 6.1% and 6.0% on December 31, 1995
and 1994, respectively.
FOREIGN CURRENCY FORWARDS (SHORT DATED): In connection with the receipt in 1995
of demand loans denominated in UK pounds from NYNEX CableComms, NYNEX entered
into foreign currency forward contracts to manage the foreign currency exposures
associated with the loans' repayments.
INTEREST RATE SWAPS/CAPS: In order to manage interest rate exposures, NYNEX
employs various strategies primarily involving interest rate swaps which
sometimes incorporate interest rate options. The net costs of these options are
amortized to interest expense over the lives of the applicable agreements.
NYNEX has entered into several interest rate swap agreements to modify the
interest rate profile of its liability portfolio. These swaps are associated
with either a portion of commercial paper or non-callable medium-term notes and
are designed to achieve a targeted mix of floating and fixed rate debt for the
NYNEX portfolio. The following table indicates the types of interest rate swaps
used for this purpose and their weighted average interest rates. Variable rates
are based on the expected future rates based on the yield curve at the reporting
date; those may change significantly but are not expected to have a material
effect on future cash flows. These swap contracts, with remaining maturities of
between one and eight years, are as follows:
(In millions) 1995 1994
- --------------------------------------------------------------------------------
Receive-fixed swaps-notional amount $186.7 $186.7
Average receive rate 6.60% 6.60%
Average pay rate 5.48% 8.20%
Pay-fixed swaps-notional amount $ 92.5 $ 89.2
Average pay rate 6.08% 6.34%
Average receive rate 5.23% 8.45%
- --------------------------------------------------------------------------------
<PAGE>
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22 Management's Discussion and Analysis NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
FOREIGN CURRENCY SWAPS/OTHER: In order to mitigate the impacts of foreign
currency and interest rate fluctuations on certain payments in conjunction with
the financing of the network construction project in the UK, NYNEX entered into
two cross-currency swaps. The contract terms for these swap agreements include
foreign currency and interest rate components which are settled quarterly when
payments are made and received. For the swap relating to the financing of the
franchises in the North (entered into on December 19, 1994), the exchange rate
is 1.5625 $/(pound). For the swap relating to the financing of the franchises in
the South (entered into on December 31, 1993), the exchange rate is 1.4795
$/(pound). The swaps require NYNEX to pay in US dollars an average fixed
interest rate of 13% and 15.4% for the North and South financings, respectively,
and to receive a variable interest rate based on 3-Month LIBOR, payable in UK
Pounds. The net impact of activities related to the swaps is recorded in income
from continuing operations.
STRUCTURED NOTE SWAPS: During 1994, NYNEX entered into three derivative
contracts in connection with the issuance of three structured medium-term notes
with a total principal amount of $55 million in order to lower financing costs.
The three derivative contracts have effectively converted the structured notes
into standard medium-term notes with effective interest rates of 7.18% ($20
million principal), 7.785% ($10 million principal) and 3-Month LIBOR + 0.15%
($25 million principal).
Impact on Operations
- --------------------
In 1995, 1994, and 1993, NYNEX's income from continuing operations was reduced
by $32.0, $8.6 and $10.7 million, respectively, from all risk management
activities. The $32.0 million reduction in 1995 was primarily due to $17.4
million from an unrealized "mark to market" valuation adjustment for the basis
swaps. The remaining $14.6 million reduction in 1995 and reductions in 1994 and
1993 were primarily due to the interest expense associated with interest rate
management and synthetic non-Dollar debt.
NYNEX's policy requires the evaluation of the hedging of international equity
investments on a case-by-case basis. By hedging the foreign currency risk
associated with some of these investments, NYNEX has incurred additional costs.
These incremental costs reflect the higher cost of capital in the relevant
international markets. For the hedges utilizing derivatives, these incremental
costs have been reflected in interest expense and in the fair value of the
respective derivative liabilities. As of December 31, 1995 and 1994,
approximately $(34.9) and $(43.6) million, respectively, of the fair market
value of derivative (hedging) liabilities reflects any remaining unamortized
incremental cost of hedging equity investments in the UK and Thailand. These
remaining incremental costs are discounted based upon the rates implied in the
yield curve at the reporting dates. The interest expense associated with these
hedges is managed as part of NYNEX's overall interest rate structure.
COLLECTIVE BARGAINING AGREEMENTS
- --------------------------------
In May 1994, agreements were ratified with the Communications Workers of America
and the International Brotherhood of Electrical Workers ("IBEW") in New York to
extend the collective bargaining agreements through August 8, 1998. A similar
agreement was reached with and ratified by the IBEW in New England in August
1994. There will be basic wage increases of 10.5% during the life of the
agreements. The wage rates increased 4.0% in August 1995, and will increase 3.5%
and 3.0% in August 1996 and 1997, respectively. In 1997, there may also be a
cost-of-living adjustment. The agreements also provide for retirement
incentives, a commitment to no layoffs or loss of wages as a result of
company-initiated "process change," an enhanced educational program and stock
grant and other incentives to improve service quality.
Competitive and Regulatory Environment
- --------------------------------------
COMPETITION
NYNEX believes that, while it will face significantly increased risks in its
traditional markets, there will be significant opportunities in its many new
markets.
Federal and state regulators continue to adopt policies favoring competition and
have initiated various proceedings to further those policies. Those policies
will be advanced by the enactment of the Telecommunications Act of 1996, which
immediately opens NYNEX's local telecommunications markets to full competition.
An increasing number of national and global companies with substantial capital
and marketing resources are expected to enter many of NYNEX's local markets. At
the same time, the 1996 Act frees NYNEX to enter the long distance, video
entertainment and information markets. NYNEX is granted immediate relief for
long distance calling (both U.S. and international) originating outside of the
NYNEX region, as well as for long distance ser-
<PAGE>
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NYNEX 1995 Annual Report Management's Discussion and Analysis 23
- --------------------------------------------------------------------------------
vices incidental to wireless, video and information services, and for video
programming.
Most of the services that NYNEX provides in its local telecommunications markets
have been facing increasing competition for the past several years. NYNEX has
responded by obtaining increased pricing flexibility under incentive regulation,
introducing new services, and improving service quality. Increases in 1995
Private Line/Special Access revenues, and the number of Centrex "win-backs" from
PBX vendors indicate NYNEX's ability to respond effectively in its most
competitive markets.
Competition for intraLATA toll revenues has intensified, beginning in 1994 with
the increased marketing of "dial-around" programs by inter-exchange carriers.
However, to date, the "retail" toll revenues NYNEX has lost to such programs are
being offset in part by increased revenues from wholesale access charges. ILP
began in New York in late 1995 and was completed in February 1996. Future
wholesale pricing is the subject of pending regulatory proceedings.
In the highly competitive interstate access market, NYNEX received a waiver from
the FCC in 1995, to de-average switched access rates in the metropolitan New
York LATA and introduce a new fixed monthly charge paid directly by
interexchange carriers. This has enabled NYNEX to charge prices that more
accurately reflect the market conditions in its most competitive area.
To provide interLATA long distance service for calls originating within its
region, NYNEX must meet certain technical and regulatory requirements and the
FCC must determine it to be in the public interest.
NYNEX considers itself well positioned to enter the in-region long distance
business quickly, as in New York and Massachusetts it already meets many of the
requirements of this competitive "checklist." NYNEX provides for physical
collocation of competitors' facilities and has signed interconnection agreements
which include number portability and reciprocal compensation for terminating
traffic with local exchange competitors. NYNEX has also unbundled many
components of its network and offers them on a wholesale basis, and completed
ILP in New York in February 1996.
Significant regulatory developments of 1995 are discussed below.
STATE REGULATORY
During 1995 the telephone subsidiaries were able to replace rate of return
regulation with price regulation plans in New York, Massachusetts and Maine,
which represent approximately 95% of their access lines collectively. These
state regulatory plans eliminate the telephone subsidiaries' obligation to share
earnings with customers, allow the companies greater flexibility to vary prices
to meet competition and impose service quality performance measurements. In
January 1996, New England Telephone filed a proposed price regulation plan with
the Rhode Island Public Utilities Commission.
Massachusetts
- -------------
INCENTIVE PLAN: In Massachusetts, the price regulation plan approved by the
Massachusetts Department of Public Utilities ("MDPU") governs New England
Telephone's Massachusetts intrastate operations through August 2001. Certain
residence exchange rates are capped, and pricing rules limit New England
Telephone's ability to increase prices for most services. The MDPU also
established a quality of service index and ordered that New England Telephone's
inability to meet the performance levels in any given month would result in a
one-twelfth of one percent increase in the productivity offset used in the
annual price cap filing. New England Telephone's initial price plan tariff
filing, which became effective in September 1995, contains rate changes that
will result in an annual revenue reduction of approximately $38 million. The
MDPU's Order has been appealed to the Supreme Judicial Court of Massachusetts.
COMPETITION PROCEEDING: In 1995, hearings commenced in the MDPU's investigation
of intraLATA and local exchange competition in Massachusetts. The MDPU has
indicated that among the matters it intends to address are collocation,
interconnection of networks, intraLATA toll presubscription, telephone number
assignment and portability and universal service funding.
New York
- --------
INCENTIVE PLAN: In 1995, the NYSPSC approved with modifications a Plan that
changes the manner in which New York Telephone will be regulated by the NYSPSC
over the next five to seven years. Prices are capped at current rates for
"basic" services such as residence and business exchange access, residence and
business local calling and LifeLine service, and price reduction commitments are
established for a number of services, including toll and intraLATA carrier
access services. Certain prices may be adjusted
<PAGE>
- --------------------------------------------------------------------------------
24 Management's Discussion and Analysis NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
annually based on an inflation index and costs associated with NYSPSC mandates
and other defined "exogenous" events. Depending on whether the Plan remains in
effect for five or seven years, New York Telephone's prices will have been
decreased by an amount that, based on current volumes of business, would produce
an aggregate revenue reduction over the term of the plan of $1.1 billion at the
end of five years, or $1.9 billion at the end of seven years.
The Plan also establishes service quality targets with stringent rebate
provisions if New York Telephone is unable to meet some or all of the targets,
and sets an accelerated schedule for the provision of ILP. New York Telephone's
compliance tariffs under the Plan became effective on a temporary basis as of
September 1, 1995, and will remain temporary pending the NYSPSC Staff's review
and investigation.
The NYSPSC has rejected various petitions that had been filed for
reconsideration of the order approving the Plan and indicated that it had
approved a Staff plan for monitoring New York Telephone's compliance. In late
1995, MCI Communications Corporation ("MCI") commenced a proceeding in the New
York Supreme Court seeking to overturn the NYSPSC's orders with respect to the
Plan. MCI challenges the lack of an earnings cap and asserts that New York
Telephone's rates should be further reduced annually by the amount of the $153
million set-aside.
COMPETITION II PROCEEDING: In 1995, the NYSPSC issued an order resolving certain
issues in its proceeding on local exchange competition in New York State. New
York Telephone must provide White Pages directory listings at no charge to
customers of competitive local exchange carriers ("CLECs"), but may negotiate
fees with CLECs for delivery of the directories to their customers. The NYSPSC
also established a reciprocal compensation scheme for the payment of access
rates when New York Telephone and CLECs terminate traffic on each other's
networks. In general, the NYSPSC's plan permits "full-service, facilities-based"
local exchange carriers to pay a lower rate than other carriers will be required
to pay. The NYSPSC also determined that New York Telephone must, upon request,
provide services to interconnect CLECs that are collocated in New York
Telephone's central offices.
The NYSPSC also directed New York Telephone to file tariffs to remove
restrictions on the resale of residential services, effective February 1996, or
to show cause why such restrictions should not be removed.
In January 1996, following New York Telephone's show-cause response requesting
more time for implementation, the NYSPSC issued an order requiring
implementation, with respect to both residential and business services, in
October 1996.
The NYSPSC has issued orders resolving various procedural and operational issues
related to ILP. The NYSPSC approved New York Telephone's proposal to implement
ILP for analog central offices as those switches are replaced by digital
equipment. By the end of February 1996, New York Telephone had implemented ILP
in all of its digital switching systems.
OTHER: In 1991, the NYSPSC authorized a $250 million increase in New York
Telephone's rates, of which $47.5 million annually remains subject to refund
pending resolution of certain issues related to New York Telephone's
transactions with other NYNEX affiliates in 1984-1990. In 1995, the NYSPSC's
independent consultant concluded its final report detailing findings and
recommendations, and an NYSPSC administrative law judge issued a procedural
ruling for future hearings and the filing of evidence. In January 1996, New York
Telephone filed notice with the NYSPSC of its intention to open settlement
discussions in this case and requested an extension of the date for the filing
of testimony.
FEDERAL REGULATORY
PRICE CAP PLAN: The telephone subsidiaries are subject to incentive regulation
in the form of price caps. Price cap limits are subject to adjustment each year
to reflect inflation, a productivity factor and certain other cost changes. In
1995, the FCC issued a Notice of Proposed Rulemaking regarding the productivity
factor used by local exchange carriers ("LECs") in the FCC price cap formula.
The Proposed Rulemaking will consider changes in the determination of the
productivity factor, the recognition of exogenous costs, the extent of carrier
sharing, and the formula for calculating the price cap index for certain
services. The FCC expects to issue an order in time for the final changes to be
reflected in LECs' rates as of July 1996. The FCC has also issued a Notice of
Proposed Rulemaking to determine how the price cap rules should be modified to
accommodate increasing levels of competition. The FCC asked for comments on a
proposal by the telephone subsidiaries that earnings sharing be reduced or
eliminated as an LEC implements measures to promote competition for local
exchange services. The FCC has indicated that it intends to establish a
rulemaking proceeding in 1996 to consider reform of the rules
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Selected Financial and Operating Data 25
- --------------------------------------------------------------------------------
concerning the structure of access charges. This rulemaking proceeding would
consider changes that might be necessary as competition increases in the local
telephone market.
OTHER FEDERAL REGULATORY: In January 1996, the FCC issued a Notice of Proposed
Rulemaking addressing the charges made for interconnection between LECs and
wireless carriers. Currently, such charges are established by contracts under
the jurisdiction of the state regulatory commissions. The FCC requested comment
on its tentative conclusion to require, pending the completion of its Proposed
Rulemaking, reciprocal "bill-and-keep" compensation arrangements under which the
originating carrier would no longer pay the terminating carrier for access.
Adoption of the proposed procedure would have a negative effect on the revenues
of the LECs, including the telephone subsidiaries. The telephone subsidiaries
plan to participate actively in the proceeding.
During 1996, the FCC will conduct a number of rulemaking proceedings in order to
implement the Telecommunications Legislation enacted in February 1996.
In February 1996, New England Telephone advised the FCC that it relinquished
authorization to construct advanced video dialtone network facilities in
portions of Massachusetts and Rhode Island.
SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
(In millions, except per share amounts) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 13,407 $13,307 $ 13,408 $13,183 $13,255
Operating expenses $ 11,315 $11,550 $ 13,075 $10,655 $11,665
Interest expense $ 734 $ 674 $ 660 $ 685 $ 726
Earnings (loss) before extraordinary item
and cumulative effect of change in
accounting principle $ 1,069 $ 793 $ (272) $ 1,311 $ 601
Extraordinary item for the discontinuance
of regulatory accounting principles,
net of taxes $ (2,919) $ -- $ -- $ -- $ --
Cumulative effect of change in accounting for
postemployment benefits, net of taxes $ -- $ -- $ (122) $ -- $ --
Net income (loss) $ (1,850) $ 793 $ (394) $ 1,311 $ 601
Earnings (loss) per share before extraordinary
item and cumulative effect of change in
accounting principle $ 2.50 $ 1.89 $ (.66) $ 3.20 $ 1.49
Extraordinary item per share $ (6.84) $ -- $ -- $ -- $ --
Cumulative effect per share of change in
accounting principle $ -- $ -- $ (.29) $ -- $ --
Earnings (loss) per share $ (4.34) $ 1.89 $ (.95) $ 3.20 $ 1.49
Dividends per share $ 2.36 $ 2.36 $ 2.36 $ 2.32 $ 2.28
Property, plant and equipment-net $ 17,055 $20,623 $ 20,250 $19,973 $19,915
Total assets $ 26,220 $30,068 $ 29,458 $27,732 $27,503
Long-term debt $ 9,337 $ 7,785 $ 6,938 $ 7,018 $ 6,833
Stockholders' equity $ 6,079 $ 8,581 $ 8,416 $ 9,724 $ 9,120
Book value per share $ 14.06 $ 20.26 $ 20.28 $ 23.51 $ 22.38
Capital expenditures+ $ 3,188 $ 3,012 $ 2,717 $ 2,450 $ 2,499
Network access lines in service 17.1 16.6 16.0 15.6 15.3
- ----------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Management's Discussion and Analysis of Financial Condition and Results of
Operations for the effect of non-recurring items on 1995 results, and
restructuring charges on 1995, 1994 and 1993 results of operations. Results of
operations for 1991 include $841 million of pretax ($550 million after-tax)
restructuring charges.
+ Excludes additions under capital lease obligations, and prior to the
discontinuance of Statement No. 71, the equity component of allowance for
funds used during construction.
<PAGE>
- --------------------------------------------------------------------------------
26 Report of Independent Accountants NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Share Owners and Board of Directors of NYNEX Corporation:
We have audited the accompanying consolidated balance sheets of NYNEX
Corporation and its subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These consolidated financial statements are the responsibility of NYNEX
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of NYNEX
Corporation and its subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note B to the consolidated financial statements, in the second
quarter of 1995, NYNEX Corporation discontinued accounting for the operations of
its telephone subsidiaries in accordance with Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation."
Additionally, as discussed in Note D to the consolidated financial statements,
in the fourth quarter of 1993, NYNEX Corporation adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" retroactive to January 1, 1993.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
February 5, 1996
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Report of Management 27
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT
Management of NYNEX Corporation and its subsidiaries ("NYNEX") has the
responsibility for preparing the accompanying consolidated financial statements
and for their integrity and objectivity. The financial statements were prepared
in accordance with generally accepted accounting principles, which require
management to make estimates and assumptions that affect reported amounts.
Actual results could differ from those estimates. In Management's opinion, the
consolidated financial statements are fairly presented. Management also prepared
the other information in this report and is responsible for its accuracy and
consistency with the consolidated financial statements.
The consolidated financial statements have been audited by Coopers & Lybrand
L.L.P. ("Coopers & Lybrand"), independent accountants, whose appointment was
ratified by NYNEX's stockholders. Management has made available to Coopers &
Lybrand all of NYNEX's financial records and related data, as well as the
minutes of stockholders' and directors' meetings. Furthermore, Management
believes that all representations made to Coopers & Lybrand during its audit
were valid and appropriate.
Management of NYNEX has established and maintains an internal control structure
that is designed to provide reasonable assurance as to the integrity and
reliability of the consolidated financial statements, the protection of assets
from unauthorized use or disposition, and the prevention and detection of
fraudulent financial reporting. The concept of reasonable assurance recognizes
that the cost of the internal control structure should not exceed the benefits
to be derived. The internal control structure provides for appropriate division
of responsibility and is documented by written policies and procedures that are
communicated to employees with significant roles in the financial reporting
process. Management monitors the internal control structure for compliance,
considers recommendations for improvement from both the internal auditors and
Coopers & Lybrand, and updates such policies and procedures as necessary.
Monitoring includes an internal auditing function to independently assess the
effectiveness of the internal controls and recommend possible improvements
thereto. Management believes that the internal control structure of NYNEX is
adequate to accomplish the objectives discussed herein.
The Audit Committee of the Board of Directors, which is comprised of directors
who are not employees, meets periodically with Management, the internal auditors
and Coopers & Lybrand to review the manner in which they are performing their
responsibilities and to discuss matters relating to auditing, internal controls
and financial reporting. Both the internal auditors and Coopers & Lybrand
periodically meet privately with the Audit Committee and have access to the
Audit Committee at any time.
Management also recognizes its responsibility for conducting NYNEX activities
under the highest standards of personal and corporate conduct. This
responsibility is accomplished by fostering a strong ethical climate as
characterized in NYNEX's Code of Business Conduct, which is publicized
throughout NYNEX. This code of conduct addresses, among other things, standards
of personal conduct, potential conflicts of interest, compliance with all
domestic and foreign laws, accountability for NYNEX property, and the
confidentiality of proprietary information.
/s/Ivan Seidenberg
IVAN SEIDENBERG
Chairman and Chief Executive Officer
/s/Peter M. Ciccone
PETER M. CICCONE
Vice President and Comptroller
<PAGE>
- --------------------------------------------------------------------------------
28 Consolidated Statements of Income NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the year ended December 31, (In millions, except per share amounts) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES
Local service $ 6,722.2 $ 6,605.4 $ 6,472.9
Long distance 1,039.2 1,081.2 1,134.4
Network access 3,557.5 3,447.0 3,387.2
Other 2,088.0 2,173.0 2,413.3
- ----------------------------------------------------------------------------------------------------------
Total operating revenues 13,406.9 13,306.6 13,407.8
- ----------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Maintenance and support 3,069.0 3,039.7 3,194.2
Depreciation and amortization 2,566.8 2,640.6 2,534.0
Marketing and customer services 1,422.2 1,415.7 1,441.1
Taxes other than income 1,015.6 993.2 1,038.9
Selling, general and administrative 2,484.5 2,639.7 4,031.1
Other 756.6 821.5 835.2
- ----------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 11,314.7 11,550.4 13,074.5
- ----------------------------------------------------------------------------------------------------------
Operating income 2,092.2 1,756.2 333.3
Gain on sale of stock by subsidiary [Note J] 264.1 -- --
Other income (expense) - net (4.9) (43.8) (97.0)
Interest expense 733.9 673.8 659.5
Income (loss) from long-term investments 92.9 57.7 (21.9)
- ----------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes, extraordinary item
and cumulative effect of change in accounting principle 1,710.4 1,096.3 (445.1)
Income taxes 640.9 303.7 (172.7)
- ----------------------------------------------------------------------------------------------------------
Earnings (loss) before extraordinary item and cumulative
effect of change in accounting principle 1,069.5 792.6 (272.4)
Extraordinary item for the discontinuance of regulatory
accounting principles, net of taxes [Note B] (2,919.4) -- --
Cumulative effect of change in accounting for
postemployment benefits, net of taxes [Note D] -- -- (121.7)
- ----------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(1,849.9) $ 792.6 $ (394.1)
- ----------------------------------------------------------------------------------------------------------
Earnings (loss) per share before extraordinary item and
cumulative effect of change in accounting principle $ 2.50 $ 1.89 $ (.66)
Extraordinary item per share (6.84) -- --
Cumulative effect per share of change in accounting
principle -- -- (.29)
- ----------------------------------------------------------------------------------------------------------
Earnings (loss) per share $ (4.34) $ 1.89 $ (.95)
- ----------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 426.5 418.8 412.7
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Consolidated Balance Sheets 29
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, (In millions, except share amounts) 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $ 93.2 $ 137.5
Receivables (net of allowance of $221.6 and $226.7, respectively) 2,636.2 2,532.5
Inventories 141.3 173.3
Prepaid expenses 360.2 361.2
Deferred charges and other current assets 456.5 593.5
- ----------------------------------------------------------------------------------------------
Total current assets 3,687.4 3,798.0
- ----------------------------------------------------------------------------------------------
Property, plant and equipment - net 17,055.3 20,623.4
Long-term investments [Note F] 3,286.2 1,999.4
Deferred charges and other assets 2,191.1 3,647.2
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS $26,220.0 $30,068.0
- ----------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,902.2 $ 2,668.2
Short-term debt 506.6 2,128.8
Other current liabilities 583.7 1,053.5
- ----------------------------------------------------------------------------------------------
Total current liabilities 3,992.5 5,850.5
- ----------------------------------------------------------------------------------------------
Long-term debt 9,336.9 7,784.5
Deferred income taxes 1,650.2 3,364.7
Unamortized investment tax credits 198.8 304.4
Other long-term liabilities and deferred credits 3,885.0 3,615.3
Minority interest, including a portion subject
to redemption requirements [Note J] 1,077.4 567.2
Commitments and contingencies [Notes G, M, N, Q and S]
Stockholders' equity:
Preferred stock - $1 par value, 70,000,000 shares authorized -- --
Preferred stock - Series A Junior Participating - $1 par value,
5,000,000 shares authorized -- --
Common stock - $1 par value, 750,000,000 shares authorized 447.2 439.7
Additional paid-in capital 6,566.9 6,942.0
Retained earnings -- 2,208.2
Treasury stock - (14,756,356 and 16,102,683 shares,
respectively, at cost) (591.1) (644.3)
Deferred compensation - LESOP Trust (343.8) (364.2)
- ----------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 6,079.2 8,581.4
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,220.0 $30,068.0
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
- --------------------------------------------------------------------------------
30 Consolidated Statements of Changes in NYNEX 1995 Annual Report
Stockholder's Equity
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deferred
Additional Compensation Total
Common Common Paid-In Retained Treasury LESOP Stockholders'
(In millions) Shares Stock Capital Earnings Stock Trust Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 214.2 $ 214.2 $ 6,520.0 $ 3,958.7 $ (572.9) $ (396.3) $ 9,723.7
Employee benefit
and dividend
reinvestment plans 2.3 2.3 100.3 -- (67.0) 16.0 51.6
Stock split [Note K] 214.6 214.6 -- (206.4) (8.2) -- --
Dividends
($2.36 per common share) -- -- -- (974.8) -- -- (974.8)
Other -- -- 4.2 4.9 -- -- 9.1
Net loss -- -- -- (394.1) -- -- (394.1)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 431.1 $ 431.1 $ 6,624.5 $ 2,388.3 $ (648.1) $ (380.3) $ 8,415.5
Employee benefit
and dividend
reinvestment plans 8.6 8.6 317.4 -- 3.8 16.1 345.9
Dividends
($2.36 per common share) -- -- -- (993.0) -- -- (993.0)
Other -- -- .1 20.3 -- -- 20.4
Net income -- -- -- 792.6 -- -- 792.6
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 439.7 $ 439.7 $ 6,942.0 $ 2,208.2 $ (644.3) $ (364.2) $ 8,581.4
Employee benefit
and dividend
reinvestment plans 7.1 7.1 273.5 -- 53.4 20.4 354.4
Dividends [Note K]
($2.36 per common share) -- -- (674.4) (337.1) -- -- (1,011.5)
Other .4 .4 25.8 (21.2) (.2) -- 4.8
Net loss -- -- -- (1,849.9) -- -- (1,849.9)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 447.2 $ 447.2 $ 6,566.9 $ -- $ (591.1) $ (343.8) $ 6,079.2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, there were 894,833 stockholders of record of common
shares.
See accompanying notes to consolidated financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Consolidated Statements of Cash Flows 31
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31, (In millions) 1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:*
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,849.9) $ 792.6 $ (394.1)
- --------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item, net of taxes 2,919.4 -- --
Depreciation and amortization 2,566.8 2,640.6 2,534.0
Amortization of unearned lease income - net (92.1) (82.0) (91.7)
Deferred income taxes - net 156.8 (160.2) (671.1)
Deferred tax credits - net (42.0) (49.8) (59.7)
Gain on sale of stock by subsidiary (264.1) -- --
Changes in operating assets and liabilities:
Receivables (212.6) (93.4) (56.9)
Inventories 25.9 (4.1) 17.3
Prepaid expenses (12.3) (55.0) 14.8
Deferred charges and other current assets 118.3 255.9 (303.7)
Accounts payable 359.4 (190.2) 284.4
Other current liabilities (257.8) 290.2 (47.7)
Other - net 232.0 355.1 2,424.6
- --------------------------------------------------------------------------------------------------------
Total adjustments 5,497.7 2,907.1 4,044.3
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,647.8 3,699.7 3,650.2
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,188.1) (3,012.2) (2,717.2)
Investment in leased assets (245.4) (173.8) (241.5)
Cash received from leasing activities 85.9 67.0 57.7
Other investing activities - net (518.3) (43.6) (1,349.5)
- --------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (3,865.9) (3,162.6) (4,250.5)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of commercial paper and short-term debt 13,940.3 18,230.0 14,438.6
Repayment of commercial paper and short-term debt (13,981.2) (19,905.6) (11,985.6)
Issuance of long-term debt 136.4 1,556.2 2,410.9
Repayment of long-term debt and capital leases (144.5) (127.9) (141.3)
Debt refinancing and call premiums -- -- (3,120.3)
Issuance of common stock 222.7 213.2 98.3
Purchase of treasury stock -- -- (92.3)
Dividends paid (899.4) (882.5) (944.1)
Minority interest 289.2 359.2 5.0
Proceeds from sale of stock by subsidiary - net 610.3 -- --
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 173.8 (557.4) 669.2
- --------------------------------------------------------------------------------------------------------
Net (decrease) increase in Cash and temporary cash investments (44.3) (20.3) 68.9
Cash and temporary cash investments at beginning of year 137.5 157.8 88.9
- --------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 93.2 $ 137.5 $ 157.8
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Excludes non-cash effects of deconsolidation of cellular subsidiary in 1995.
(See Note F.)
See accompanying notes to consolidated financial statements.
<PAGE>
- --------------------------------------------------------------------------------
32 Notes to Consolidated Statements NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
A. ACCOUNTING POLICIES
- ----------------------
NATURE OF OPERATIONS
NYNEX Corporation ("NYNEX") is a global communications and media corporation
that provides a full range of services in the northeastern United States
and in high growth markets around the world. NYNEX has expertise in
telecommunications, wireless communications, directory publishing, and video
entertainment and information services. Intrastate communications services are
regulated by various state public service commissions ("state commissions"), and
interstate communications services are regulated by the Federal Communications
Commission ("FCC").
The communications and media industry continues to experience fundamental
changes at an ever-increasing pace. Telecommunications, information and
entertainment services are converging in the market, driven by technology and
released by landmark federal legislation that will remove historic regulatory
barriers. These changes are likely to have a significant effect on the future
financial performance of many companies in the industry. NYNEX cannot predict
the effect of such competition on its business.
NYNEX is implementing a major restructuring of its business, has entered into
domestic strategic alliances, and is expanding globally in select international
markets in order to respond to competition. In addition, NYNEX is pursuing
reforms in telecommunications policy at both the state and federal levels. In
February, the Telecommunications Act of 1996 was signed into law. This
legislation will lead to the development of competition in local and long
distance telephone service, cable television, and information and entertainment
services.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NYNEX and its
subsidiaries. Investments in entities in which NYNEX does not have control, but
has the ability to exercise significant influence over operations and financial
policies, are accounted for using the equity method. Other investments are
accounted for using the cost method.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP"). GAAP requires Management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The 1994 and 1993 consolidated financial statements have been reclassified to
conform to the current year's format.
In the second quarter of 1995, NYNEX discontinued using GAAP applicable to
regulated entities for the operations of New York Telephone Company ("New York
Telephone") and New England Telephone and Telegraph Company ("New England
Telephone") (collectively, the "telephone subsidiaries") (see Note B).
In the third quarter of 1995, NYNEX deconsolidated certain assets and
liabilities of NYNEX Mobile Communications Company ("NYNEX Mobile"), a
wholly-owned subsidiary of NYNEX, in exchange for an equity interest in a
cellular partnership between NYNEX and Bell Atlantic Corporation ("Bell
Atlantic") (see Note F). As a result, NYNEX Mobile's results for the first half
of 1995 were reported on a consolidated basis. For the second half of 1995,
NYNEX's share of the partnership's results were reported on an equity basis
included in Income (loss) from long-term investments.
Upon the deconsolidation of NYNEX Mobile, Management reassessed its
determination of reportable segments and concluded that a dominant portion of
NYNEX's operations is in a single industry segment. In the third quarter of
1995, NYNEX discontinued reporting segment information in accordance with
Statement of Financial Accounting Standards No. 14, "Financial Reporting for
Segments of a Business Enterprise." This change had no effect on NYNEX's results
of operations or financial position.
CASH AND TEMPORARY CASH INVESTMENTS
Temporary cash investments are liquid investments with maturities of three
months or less. Temporary cash investments are stated at cost, which
approximates market value.
INVENTORIES
The telephone subsidiaries' inventories consist of materials and supplies that
are carried principally at average cost. Inventories purchased for resale are
carried at the lower of cost or market (determined using weighted average cost).
Certain other inventories are carried at the lower of cost or market (determined
on a last-in, first-out basis).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at its original cost and is depreciated
on a straight-line
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Notes to Consolidated Statements 33
- --------------------------------------------------------------------------------
basis over its useful life. When depreciable plant is disposed of by the
telephone subsidiaries, the carrying amount is charged to accumulated
depreciation.
As a result of the implementation of Statement of Financial Accounting Standards
No. 101, "Regulated Enterprises - Accounting for the Discontinuation of
Application of FASB Statement No. 71" ("Statement No. 101"), in the second
quarter of 1995, the telephone subsidiaries began recording depreciation expense
using shorter asset lives based on expectations as to the revenue-producing
lives of the assets (see Note B), calculated on a straight-line basis.
Previously, depreciation rates used by the telephone subsidiaries were
prescribed by the FCC and by the state commissions for interstate operations and
for intrastate operations, respectively, and were calculated on a straight-line
basis using the concept of "remaining life."
CAPITALIZED INTEREST COST
As a result of the application of Statement No. 101, capitalized interest for
the telephone subsidiaries is recorded as a cost of telephone plant and
equipment and a reduction of interest, in accordance with the provisions of
Statement of Financial Accounting Standards No. 34, "Capitalization of Interest
Cost" ("Statement No. 34"). Previously, regulatory authorities allowed the
telephone subsidiaries to capitalize interest, including an allowance on
shareowner's equity, as a cost of constructing certain plant and as income,
included in Other income (expense)-net. Such income was realized over the
service life of the plant as the resulting higher depreciation expense was
recovered through the rate-making process. All other subsidiaries account for
capitalized interest in accordance with Statement No. 34.
FINANCIAL INSTRUMENTS
NYNEX manages certain portions of its exposure to foreign currency and interest
rate fluctuations through a variety of strategies and instruments. Generally,
foreign currency derivatives and forwards are valued relative to the period
ending spot rate. Gains and losses applicable to these derivatives are recorded
to income currently with the exception of amounts related to foreign currency
derivatives that have been identified as a hedge of a net investment in a
foreign subsidiary, which are recorded as adjustments to Stockholders' equity
until the related subsidiary is sold or substantially liquidated. The interest
elements of these foreign currency derivatives are recognized to income ratably
over the life of the contract. Interest rate swaps and related interest rate
derivatives (swaptions, caps) identified as hedges are generally not carried at
fair value. Rather, interest rate swap receipts or payments are recognized as
adjustments to interest expense as received or paid. Swap termination payments
and fees or premiums applicable to swaptions and caps are recognized as
adjustments to interest expense over the lives of the agreements.
COMPUTER SOFTWARE COSTS
The telephone subsidiaries capitalize initial right-to-use fees for central
office switching equipment, including initial operating system and initial
application software costs. For non-central office equipment, only the initial
operating system software is capitalized. Subsequent additions, modifications,
or upgrades of initial software programs, whether operating or application
packages, are expensed. NYNEX CableComms capitalizes initial right-to-use fees
for switching equipment, including initial operating system and initial
application software costs. All nontelephone subsidiaries expense computer
software acquired or developed for internal use as incurred.
REFINANCING CHARGES
As a result of the application of Statement No. 101, the telephone subsidiaries
no longer defer call premiums and other charges associated with the redemption
of long-term debt, and previously deferred refinancing costs were eliminated
(see Note B). The intrastate portion of these costs had been deferred and
amortized over periods stipulated by the state commissions. The interstate
portion had been expensed as required by the FCC.
INCOME TAXES
Effective January 1, 1993, NYNEX adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("Statement No. 109").
Statement No. 109 requires that deferred tax assets and liabilities be measured
based on the enacted tax rates that will be in effect in the years in which
temporary differences are expected to reverse.
For the telephone subsidiaries, prior to the application of Statement No. 101,
the treatment of excess deferred taxes resulting from the reduction of tax rates
in prior years was subject to federal income tax and regulatory rules. Deferred
income tax provisions of the telephone subsidiaries were based on amounts
recognized for rate-making purposes. The telephone subsidiaries recognized a
deferred tax liability and established a corresponding regulatory asset for tax
benefits previously flowed through to ratepayers. The major temporary difference
that gave rise to the net deferred tax liability is depreciation, which for
income tax purposes is determined based on accelerated methods and shorter
lives. Statement of
<PAGE>
- --------------------------------------------------------------------------------
34 Notes to Consolidated Statements NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" ("Statement No. 71"),required the telephone subsidiaries to
reflect the additional deferred income taxes as regulatory assets to the extent
that they would be recovered in the rate-making process. In accordance with the
normalization provisions under federal tax law, the telephone subsidiaries
reversed excess deferred taxes relating to depreciation of regulated assets over
the regulatory lives of those assets. For other excess deferred taxes, the state
commissions generally allowed amortization of excess deferred taxes over the
reversal period of the temporary difference giving rise to the deferred taxes.
As a result of the application of Statement No. 101, income tax-related
regulatory assets and liabilities were eliminated (see Note B).
The Tax Reform Act of 1986 repealed the investment tax credit ("ITC"), effective
January 1, 1986. As required by tax law, ITC for the telephone subsidiaries was
deferred and is amortized as a reduction to tax expense over the estimated
service lives of the related assets giving rise to the credits.
B. DISCONTINUANCE OF
REGULATORY ACCOUNTING PRINCIPLES
- --------------------------------
In the second quarter of 1995, NYNEX discontinued accounting for the operations
of the telephone subsidiaries in accordance with the provisions of Statement No.
71. As a result, NYNEX recorded an extraordinary non-cash charge of $2.9
billion, net of income taxes of $1.6 billion.
The operations of the telephone subsidiaries no longer met the criteria for
application of Statement No. 71 due to a number of factors including:
significant changes in regulation (achievement of price regulation rather than
rate-of-return regulation in New York, Massachusetts and Maine, and ongoing
efforts to achieve price regulation in the remaining jurisdictions); an
intensifying level of competition; and the increasingly rapid pace of
technological change. Under Statement No. 71, NYNEX had accounted for the
effects of rate actions by federal and state regulatory commissions by
establishing certain regulatory assets and liabilities, including the
depreciation of its telephone plant and equipment using asset lives approved by
regulators and the deferral of certain costs and obligations based on approvals
received from regulators. NYNEX had continually assessed its position and the
recoverability of its telecommunications assets with respect to Statement No.
71.
Telephone plant and equipment was adjusted through an increase in accumulated
depreciation, to reflect the difference between recorded depreciation and the
amount of depreciation that would have been recorded had NYNEX not been subject
to rate regulation. Gross plant was written off where fully depreciated, and
non-plant regulatory assets and liabilities were eliminated from the balance
sheet.
The after-tax extraordinary charge recorded consists of $2.2 billion for the
adjustment to telephone plant and equipment and $0.7 billion for the write-off
of non-plant regulatory assets and liabilities.
The net decrease of $3.6 billion to telephone plant and equipment was supported
by a depreciation analysis, which identified inadequate depreciation reserve
levels which NYNEX believes resulted principally from the cumulative
under-depreciation of telephone plant and equipment as a result of the
regulatory process. An impairment analysis was performed that did not identify
any additional amounts not recoverable from future operations. ITC amortization
was accelerated as a result of the reduction in asset lives of the associated
telephone plant and equipment.
The major elements of the write-off of non-plant regulatory net assets were as
follows:
(In millions) Pretax After-tax
- --------------------------------------------------------------------------------
Compensated absences $173.2 $109.4
Deferred pension costs 381.1 239.5
Refinancing costs 255.6 166.5
Deferred taxes -- 55.7
Other 130.8 85.6
- --------------------------------------------------------------------------------
Total $940.7 $ 656.7
- --------------------------------------------------------------------------------
With the adoption of Statement No. 101, NYNEX now uses estimated asset lives for
certain categories of telephone plant and equipment that are shorter than those
approved by regulators. These shorter asset lives result from NYNEX's
expectations as to the revenue-producing lives of the assets. A comparison of
average asset lives before and after the discontinuance of Statement No. 71 for
the most significantly affected categories of telephone plant and equipment is
as follows:
Average lives (in years)
-------------------------
Composite
Regulator-
Approved Economic
Asset Lives Asset Lives
- --------------------------------------------------------------------------------
Digital Switching 16.5 12.0
Circuit - Other 10.5 8.0
Aerial Metallic Cable 21.0 17.0
Underground Metallic Cable 25.0 15.0
Buried Metallic Cable 24.0 17.0
Fiber 26.0 20.0
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Notes to Consolidated Statements 35
- --------------------------------------------------------------------------------
The application of Statement No. 101 does not change the telephone subsidiaries'
accounting and reporting for regulatory purposes.
C. INCOME TAX
- -------------
The components of income tax expense (benefit) are as follows:
(In millions) 1995* 1994 1993**
- --------------------------------------------------------------------------------
Federal:
Current $469.2 $488.7 $ 466.9
Deferred - net 67.8 (191.5) (611.9)
Deferred tax credits - net (42.0) (49.8) (59.7)
- --------------------------------------------------------------------------------
495.0 247.4 (204.7)
- --------------------------------------------------------------------------------
State and local:
Current 51.3 18.7 88.1
Deferred - net 89.0 31.3 (59.2)
- --------------------------------------------------------------------------------
140.3 50.0 28.9
- --------------------------------------------------------------------------------
Foreign 5.6 6.3 3.1
- --------------------------------------------------------------------------------
Total $640.9 $303.7 $(172.7)
- --------------------------------------------------------------------------------
*Does not include the deferred tax benefit of $1.6 billion associated with the
Extraordinary item for the discontinuance of regulatory accounting principles.
**Does not include the deferred tax benefit of $67.5 million associated with
the Cumulative effect of change in accounting for postemployment benefits.
A reconciliation between the federal income tax expense (benefit) computed at
the statutory rate and NYNEX's effective tax expense (benefit) is as follows:
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Federal income tax expense
(benefit) computed at the
statutory rate $598.6 $383.7 $(155.8)
a. Amortization of investment tax
credits (31.3) (55.9) (65.8)
b. Amortization of excess
deferred federal taxes due
to change in the tax rates (8.2) (48.1) (66.8)
c. State and local
income taxes, net of
federal tax benefit 91.2 32.5 18.8
d. Depreciation of certain
taxes and payroll-related
construction costs
capitalized for financial
statement purposes, but
deducted for income tax
purposes in prior years 5.0 20.5 31.6
e. Capital loss carryforwards
and reversal of valuation
allowance on capital loss
carryforwards (16.1) (58.6) 87.1
f. Other items - net 1.7 29.6 (21.8)
- --------------------------------------------------------------------------------
Income tax expense (benefit) $640.9 $303.7 $(172.7)
- --------------------------------------------------------------------------------
Not included in "c" above are gross receipts taxes that New York Telephone is
subject to in lieu of a state income tax. Temporary differences for which
deferred income taxes have not been provided by the telephone subsidiaries are
represented principally by "d" above. Upon the discontinuance of Statement No.
71 (see Note B), items "b" and "d" above have been eliminated.
The components of current and non-current deferred tax assets and liabilities at
December 31, 1995 and 1994 are as follows:
(In millions) 1995 1994
- --------------------------------------------------------------------------------
Assets Liabilities Assets Liabilities
- --------------------------------------------------------------------------------
Depreciation and
amortization $ -- $1,676.8 $ -- $3,150.0
Leveraged leases -- 976.2 -- 917.7
Restructuring
charges 286.1 -- 502.9 --
Employee benefits 1,440.0 178.3 1,228.2 189.7
Unamortized ITC 68.0 -- 168.2 --
Deferred publishing
revenues 167.0 -- 134.4 --
Other 374.6 542.2 229.8 646.2
- --------------------------------------------------------------------------------
Total deferred taxes 2,335.7 3,373.5 2,263.5 4,903.6
- --------------------------------------------------------------------------------
Valuation allowance* (29.7) -- (42.2) --
- --------------------------------------------------------------------------------
Net deferred
tax assets $2,306.0 (2,306.0) $2,221.3 (2,221.3)
- --------------------------------------------------------------------------------
Net deferred
tax liabilities -- $1,067.5 -- $2,682.3
- --------------------------------------------------------------------------------
* A valuation allowance was established in 1993 primarily for capital losses
generated from the exit from the information products and services business.
During 1995 and 1994, the valuation allowance decreased by $12.5 and $71.7
million, respectively, primarily due to tax planning strategies.
During 1995, income tax-related regulatory assets and liabilities were
eliminated as a result of the discontinued application of Statement No. 71 (see
Note B).
At December 31, 1994, the telephone subsidiaries had recorded approximately $631
million in deferred charges and deferred taxes representing the cumulative
amount of income taxes on temporary differences that were previously flowed
through to ratepayers. This deferral had been increased for the tax effect of
future revenue requirements and was being amortized over the lives of the
related depreciable assets concurrently with their recovery in rates. The
telephone subsidiaries had recorded a regulatory liability at December 31, 1994
of approximately $519 million, in Other long-term liabilities and deferred
credits and in Other current liabilities. A substantial portion of the
regulatory liability related to the 1986 reduction in the statutory federal
income tax rate and unamortized ITC. This liability had been increased for the
tax effect of future revenue requirements.
<PAGE>
- --------------------------------------------------------------------------------
36 Notes to Consolidated Statements NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
D. EMPLOYEE BENEFITS
- -------------------
PENSIONS
Substantially all NYNEX employees are covered by one of two noncontributory
defined benefit pension plans (the "Plans"). Benefits for management employees
are based on a modified career average pay plan while benefits for nonmanagement
employees are based on a nonpay-related plan. Contributions are made, to the
extent deductible under the provisions of the Internal Revenue Code, to an
irrevocable trust for the sole benefit of pension plan participants. Total
pension (benefit) for 1995, 1994 and 1993 was $(269.3), $(290.6), and $(167.0)
million, respectively. The components are as follows:
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Estimated return on plan assets:
Actual $(3,079) $ 74 $(1,964)
Deferred portion 1,872 (1,265) 833
- --------------------------------------------------------------------------------
Net (1,207) (1,191) (1,131)
Service cost 179 237 199
Interest cost on projected
benefit obligation 984 884 928
Other - net (225) (221) (163)
- --------------------------------------------------------------------------------
Net pension (benefit) $ (269) $ (291) $ (167)
- --------------------------------------------------------------------------------
The pension benefit for 1995, 1994, and 1993 includes the effect of plan
amendments and changes in actuarial assumptions for the discount rate and future
compensation levels.
The following table sets forth the Plans' funded status and amounts recognized
in the consolidated balance sheets:
December 31, (In millions) 1995 1994
- --------------------------------------------------------------------------------
Actuarial present value of accumulated benefit
obligation, including vested benefits of
$12,319 and $10,147, respectively $13,323 $11,048
- --------------------------------------------------------------------------------
Plan assets at fair value, primarily listed
stock, corporate and governmental debt
and real estate $15,782 $13,681
Less: Actuarial present value of projected
benefit obligation 14,546 12,070
- --------------------------------------------------------------------------------
Excess of plan assets over projected
benefit obligation 1,236 1,611
Unrecognized prior service cost (1,685) (2,029)
Unrecognized net gain (1,010) (862)
Unrecognized transition asset (428) (488)
- --------------------------------------------------------------------------------
Accrued pension cost $(1,887) $(1,768)
- --------------------------------------------------------------------------------
The assumptions used to determine the projected benefit obligation at December
31, 1995 and 1994 include a discount rate of 7.25% and 8.50%, respectively, and
an increase in future compensation levels of 4.1% and 4.5%, respectively, for
management employees, and 4.0% in both years for nonmanagement employees. The
expected long-term rate of return on pension plan assets used to calculate
pension expense was 8.9% in 1995, 1994 and 1993. The actuarial projections
included herein anticipate plan improvements for active employees in the future.
As a result of work force reductions primarily through retirement incentives in
1995 and 1994, partially offset by the 1995 formation of the Bell Atlantic NYNEX
Mobile cellular partnership ("BANM") (see Note F), NYNEX incurred additional
pension costs of $396.9 and $758.2 million, respectively. In 1995, this cost was
comprised of a charge for special termination benefits of $725.4 million and a
curtailment gain of $328.5 million, partially offset by 1993 severance reserves
of $78.5 million which were transferred to the pension liability. In 1994, this
cost was comprised of a charge for special termination benefits of $1,142.5
million and a curtailment gain of $384.3 million, partially offset by 1993
severance reserves of $314.8 million.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
NYNEX provides certain health care and life insurance benefits for retired
employees and their families. Substantially all of NYNEX's employees may become
eligible for these benefits if they reach pension eligibility while working for
NYNEX.
Effective January 1, 1993, NYNEX adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("Statement No. 106"). Statement No. 106 changed the practice of
accounting for postretirement benefits from recognizing costs as benefits are
paid to accruing the expected cost of providing these benefits during an
employee's working life. NYNEX is recognizing the transition obligation for
retired employees and the earned portion for active employees over a 20-year
period. The cost of health care benefits and group life insurance was determined
using the unit credit cost actuarial method.
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Notes to Consolidated Statements 37
- --------------------------------------------------------------------------------
Net postretirement benefit cost for 1995, 1994, and 1993 includes the following
components:
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Service cost $ 44.0 $ 56.6 $ 45.6
Interest cost 385.2 373.0 333.6
Estimated return on plan assets (194.6) (41.3) (92.6)
Deferred asset gain (loss) 102.1 (47.1) 9.4
Amortization of transition obligation 177.4 178.7 177.6
- --------------------------------------------------------------------------------
Net postretirement benefit cost $514.1 $519.9 $473.6
- --------------------------------------------------------------------------------
The following table sets forth the funded status and amounts recognized for
postretirement benefit plans:
December 31, (In millions) 1995 1994
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation
attributable to:
Retirees $(4,025.7) $(3,880.0)
Fully eligible plan participants (705.0) (648.2)
Other active plan participants (896.2) (516.9)
- --------------------------------------------------------------------------------
Total accumulated postretirement benefit
obligation (5,626.9) (5,045.1)
Fair value of plan assets 1,230.8 1,081.8
- --------------------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets (4,396.1) (3,963.3)
Unrecognized net loss (gain) 257.7 (21.1)
Unrecognized prior service cost 136.2 146.1
Unrecognized transition obligation 2,853.4 3,048.8
- --------------------------------------------------------------------------------
Accrued postretirement benefit cost $(1,148.8) $ (789.5)
- --------------------------------------------------------------------------------
The actuarial assumptions used to determine the 1995 and 1994 obligation for
postretirement benefit plans under Statement No. 106 are as follows: discount
rate of 7.25% and 8.50%, respectively; weighted average expected long-term rate
of return on plan assets of 8.4% in both years; weighted average salary growth
rate of 4.0% and 4.2%, respectively; medical cost trend rate of 11.6% and 12.6%
in 1995 and 1994, respectively, grading down to 4.5% in 2008; and dental cost
trend rate of 4.0% and 4.5% in 1995 and 1994, respectively, grading down to 3.0%
in 2002.
A one percent increase in the assumed health care cost trend rates for each
future year would have increased the aggregate of the service and interest cost
components of net postretirement benefit cost for 1995, 1994, and 1993 by $30.0,
$30.0, and $29.2 million, respectively, and would have increased the accumulated
postretirement benefit obligation at December 31, 1995 and 1994 by $360.0 and
$361.6 million, respectively.
As a result of work force reductions, NYNEX recorded an additional $519.5
million of postretirement benefit cost in 1993 accounted for as a curtailment.
Due to the work force reduction retirement incentives in 1995 and 1994 and the
1995 formation of BANM, NYNEX incurred additional postretirement benefit costs
of $182.2 and $429.0 million, respectively. In 1995, this cost was comprised of
a curtailment loss of $109.3 million and a charge for special termination
benefits of $72.9 million, partially offset by $72.7 million accrued for in
1993. In 1994, this cost was comprised of a curtailment loss of $325.3 million
and a charge for special termination benefits of $103.7 million, partially
offset by $178.9 million accrued for in 1993.
NYNEX established two separate Voluntary Employees' Beneficiary Association
Trusts ("VEBA Trusts"), one for management and the other for nonmanagement, to
begin prefunding postretirement health care benefits. At December 31, 1992,
NYNEX had transferred excess pension assets, totaling $486 million, to health
care benefit accounts within the pension plans and then contributed those assets
to the VEBA Trusts. No additional contributions were made in 1995, 1994 and
1993. The assets in the VEBA Trusts consist primarily of equity and fixed income
securities. Additional contributions to the VEBA Trusts are evaluated and
determined by Management.
REGULATORY TREATMENT
With respect to interstate treatment, in 1994 the FCC's 1993 order denying
exogenous treatment of additional costs recognized under Statement No. 106 was
overturned in the court. Tariff revisions were filed by the telephone
subsidiaries with the FCC in 1994 to amend price cap indices to reflect
additional exogenous costs recognized under Statement No. 106, including $42
million of costs already accrued, increased annual costs of $21 million and
increased rates of $2.2 million. Commencing December 30, 1994, the telephone
subsidiaries began collecting these revenues, subject to possible refund pending
resolution of the FCC Common Carrier Bureau's investigation. The annual update
to the price cap rates, effective August 1, 1995, included tariff revisions to
recover approximately $21 million of exogenous costs resulting from the
implementation of Statement No. 106.
<PAGE>
- --------------------------------------------------------------------------------
38 Notes to Consolidated Statements NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
With respect to intrastate treatment, in January 1994 the New York State Public
Service Commission ("NYSPSC") approved New York Telephone's plan for regulatory
accounting and rate-making treatment. They allowed the adoption of both
Statement No. 106 and Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" ("Statement No. 87"), on a revenue
requirement neutral basis, providing for the amortization of existing deferred
pension costs within a ten-year period, and eliminating the need for additional
deferrals of Statement No. 106 and Statement No. 87 costs. The NYSPSC required
New York Telephone to write-off $75 million of previously deferred pension costs
in 1993. In December 1994, New York Telephone amortized $39 million of deferred
pension costs according to this accounting plan. Upon the discontinuance of
Statement No. 71, remaining deferred pension costs were eliminated (see Note B).
New England Telephone implemented a similar plan in each of its states,
providing for immediate adoption of Statement No. 106 and Statement No. 87 on a
revenue requirement neutral basis, amortization of existing deferred pension
costs within a ten-year period, and discontinuance of additional deferrals of
Statement No. 106 and Statement No. 87 costs. In December 1994, New England
Telephone amortized $12.1 million of deferred pension costs according to this
accounting plan. Upon the discontinuance of Statement No. 71, remaining deferred
pension costs were eliminated (see Note B).
POSTEMPLOYMENT BENEFITS
NYNEX adopted Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("Statement No. 112"), in the fourth
quarter of 1993, retroactive to January 1, 1993. Statement No. 112 applies to
postemployment benefits, including workers' compensation, disability plans and
disability pensions, provided to former or inactive employees, their
beneficiaries, and covered dependents after employment but before retirement.
Statement No. 112 changed NYNEX's method of accounting from recognizing costs as
benefits are paid to accruing the expected costs of providing these benefits.
The initial effect of adopting Statement No. 112 was reported as a cumulative
effect of a change in accounting principle and resulted in a one-time, non-cash
charge of $189.2 million ($121.7 million after-tax) in 1993.
E. PROPERTY, PLANT AND EQUIPMENT - NET
- --------------------------------------
The components of property, plant and equipment-net are as follows:
December 31, (In millions) 1995 1994
- --------------------------------------------------------------------------------
Buildings $ 2,943.7 $ 2,847.9
Telephone plant and equipment 30,100.9 29,902.0
Furniture and other equipment 1,543.3 1,548.6
Other 141.0 148.6
- --------------------------------------------------------------------------------
Total depreciable property,
plant and equipment 34,728.9 34,447.1
Less: accumulated depreciation 18,679.3 14,843.7
- --------------------------------------------------------------------------------
16,049.6 19,603.4
Land 142.7 155.6
Plant under construction and other 863.0 864.4
- --------------------------------------------------------------------------------
Total property, plant and
equipment - net $17,055.3 $20,623.4
- --------------------------------------------------------------------------------
The discontinued application of Statement No. 71 resulted in a net decrease to
telephone plant and equipment of $3.6 billion, primarily through an increase in
accumulated depreciation (see Note B).
F. LONG-TERM INVESTMENTS
- ------------------------
A reconciliation of NYNEX's equity and cost method investments is as follows:
(In millions) 1995 1994
- --------------------------------------------------------------------------------
Beginning of year, equity method $ 301.2 $ 245.2
Additional investments 1,095.4 177.2
Equity in net income (loss) 33.8 (9.4)
Dividends received (4.7) (4.2)
Other 71.8 (107.6)
- --------------------------------------------------------------------------------
End of year, equity method 1,497.5 301.2
Cost method investments 1,788.7 1,698.2
- --------------------------------------------------------------------------------
Total long-term investments $3,286.2 $1,999.4
- --------------------------------------------------------------------------------
NYNEX's long-term investments include equity and cost method investments in
domestic and international interests, including cellular, real estate,
telecommunications, and publishing ventures.
Effective January 1, 1994, NYNEX adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("Statement No. 115"). Statement No. 115 specifically excludes
equity securities accounted for under the equity method and equity securities
accounted for under the cost method that do not have readily determinable fair
market values.
BELL ATLANTIC NYNEX MOBILE CELLULAR PARTNERSHIP
Effective July 1, 1995, NYNEX and Bell Atlantic completed the combination of
substantially all of their domestic cellular properties by contributing them to
a partnership, BANM, to own and operate
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Notes To Consolidated Statements 39
- --------------------------------------------------------------------------------
these properties. The combination represents the consummation of the transaction
that was agreed to and announced in June 1994. Bell Atlantic owns approximately
62.4% of BANM, and NYNEX owns approximately 37.6%. The partnership is controlled
jointly by NYNEX and Bell Atlantic.
NYNEX contributed certain cellular assets and liabilities of NYNEX Mobile, a
wholly-owned subsidiary of NYNEX, in exchange for an equity interest in BANM.
Subject to post-closing adjustments, NYNEX deconsolidated approximately $640
million of net assets and recorded an equity method investment in the
partnership.
As a condition to the completion of the combination, in July 1995, NYNEX Mobile
sold certain of its cellular properties overlapping with Bell Atlantic's
cellular properties to SNET Cellular, Inc. As a result of the formation of the
partnership, NYNEX recorded a net after-tax gain of $67.4 million resulting
primarily from the sale of overlapping cellular properties and a pension
curtailment.
OTHER LONG-TERM INVESTMENTS
1995 investments included the following: a $282.5 million additional investment
in the venture between NYNEX, Bell Atlantic, AirTouch Communications Inc. and
U S WEST Inc. which will provide national wireless personal communications
services; an additional $35.6 million investment in the Tele-TV Partnerships
between NYNEX, Bell Atlantic, and Pacific Telesis Group formed to develop
programming and other products and services for transmission over wireline and
wireless networks; a $33.9 million investment in Bayan Telecommunications
Holdings Corporation ("BayanTel"), a newly-formed holding company whose
subsidiaries have been awarded licenses to provide telecommunications services
in certain regions of the Philippines; a $28.5 million additional investment in
FLAG Limited ("FLAG") which will construct a submarine cable system from the
United Kingdom to Japan; a $55.0 million investment in P.T. Excelcomindo Pratama
("Excelcom"), a newly formed Indonesian corporation which holds a license to
operate a nationwide cellular business in Indonesia; and a $50.0 million
investment in BANX Partnership between NYNEX and Bell Atlantic which will invest
in wireless cable systems.
NYNEX did not make any significant long-term investments in 1994.
G. FINANCIAL COMMITMENTS AND GUARANTEES
- ---------------------------------------
As of December 31, 1995, NYNEX had invested approximately $46.5 million in FLAG.
NYNEX is the managing sponsor of FLAG and holds a 38% equity interest and a 41%
funding obligation in the venture. Under the terms of the FLAG project
documentation and the related financing agreements, NYNEX's obligation to
furnish its pro rata share of funding would require additional cash
contributions of approximately $181 million to FLAG. The contributions are
anticipated to be completed by the end of 1997.
A $950 million limited recourse debt facility was made available to the project
by a number of major lending institutions. As of December 31, 1995, $50 million
of this facility was utilized. Under the terms of the financing, the funding
FLAG shareholders have entered into contingent sponsor support agreements which
could require additional payments in an aggregate amount of $500 million by such
shareholders on a pro rata basis upon the occurrence of certain limited events
of default. These events of default represent risks of a type that equity
shareholders typically are required to assume in construction projects, and
which the FLAG shareholders consider to be unlikely to occur. The maximum
contingent payment each funding shareholder may be required to make may be
reduced in the future on a pro rata basis based primarily on the remaining
amount of FLAG's outstanding debt which, in turn, is dependent upon the level of
sales.
NYNEX's allocable percentage of the contingent sponsor support commitment is
51%, up to a maximum of $255 million. This includes an additional 10% share that
NYNEX assumed on behalf of another shareholder in return for a fee. In addition,
NYNEX has backstopped, for a fee, the guarantee of the parent corporation of a
third shareholder of its contingent sponsor support obligation in an amount not
to exceed $95 million. This backstop obligation would be triggered only upon a
failure by such parent corporation to fulfill the obligations under its primary
guarantee, if required to do so upon the default of its subsidiary to make any
payment under the aforementioned contingent sponsor support agreement. This
contingent obligation of NYNEX is itself supported by a reimbursement agreement
between NYNEX and the shareholder and further supported by a direct guarantee by
that shareholder's parent corporation in favor of NYNEX.
<PAGE>
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40 Notes to Consolidated Statements NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
NYNEX maintains a 33% equity interest in the Tele-TV Partnerships (the
"Partnerships"), and Bell Atlantic and Pacific Telesis Group are equal partners
in this venture. As of December 31, 1995, NYNEX had invested approximately $37
million into the Partnerships. NYNEX is obligated to make additional cash
contributions on a pro rata basis of approximately $79 million, currently
anticipated to be completed by the end of 1998.
NYNEX holds a 15% interest in BayanTel. As of December 31, 1995, NYNEX had
invested approximately $34 million in BayanTel and is committed to invest an
additional $14 million over the next two years.
In December 1995, NYNEX invested $55 million in Excelcom for a 23% interest, and
in January 1996, NYNEX invested an additional $60 million. Under the terms of
the partnership agreement, NYNEX is currently obligated to invest an additional
$72 million by October 1997.
As of December 31, 1995, New York Telephone had deferred $188 million of
revenues ($161 million under an NYSPSC-approved regulatory plan associated with
commitments for fair competition, universal service, service quality and
infrastructure improvements, and $27 million for a 1994 service improvement plan
obligation). These revenues will be recognized as commitments are met or
obligations are satisfied under the plans. If New York Telephone is unable to
meet certain of these commitments, the NYSPSC has the authority to require New
York Telephone to refund these revenues to customers.
In December 1995, Telesector Resources Group, Inc. ("Telesector Resources"), a
NYNEX subsidiary, entered into purchase agreements with various suppliers to
purchase, on behalf of the telephone subsidiaries, equipment and software to
upgrade the network. The purchase agreements are over five years with a
commitment of approximately $550 million.
H. LONG-TERM DEBT
- -----------------
Interest rates and maturities on long-term debt outstanding are as follows:
December 31,
(In millions) Interest Rates Maturities 1995 1994
- --------------------------------------------------------------------------------
Refunding Mortgage Bonds: 3 3/8% - 7 3/4% 1997 - 2006 $ 620.0 $ 675.0
6% - 7 1/2% 2007 - 2011 425.0 425.0
Debentures: 4 1/2% - 7 3/8% 1999 - 2008 780.0 780.0
7% - 9 3/5% 2010 - 2017 898.6 918.7
6 5/7% - 9 3/8% 2022 - 2033 1,900.0 2,250.0
Notes 4% -10 1/7% 1997 - 2009 2,736.7 2,683.3
Other 1,951.9 30.5
Unamortized discount - net (36.5) (47.9)
- --------------------------------------------------------------------------------
9,275.7 7,714.6
- --------------------------------------------------------------------------------
Long-term capital lease obligations 61.2 69.9
- --------------------------------------------------------------------------------
Total long-term debt $9,336.9 $7,784.5
- --------------------------------------------------------------------------------
The annual requirements for principal payments on long-term debt, excluding
capital leases, are $497.8, $481.2, $265.0, $491.0 and $232.0 million for the
years 1996 through 2000, respectively.
The Refunding Mortgage Bonds and $3.2 billion of the telephone subsidiaries'
Debentures outstanding at December 31, 1995 are callable, upon thirty days'
notice, by the respective telephone subsidiary, after the required term of
years.
Substantially all of New York Telephone's assets are subject to lien under New
York Telephone's Refunding Mortgage Bond indenture. At December 31, 1995, New
York Telephone's total assets were approximately $11.6 billion.
Pursuant to the indentures for certain of its debentures, New York Telephone has
covenanted that it will not issue additional funded debt securities ranking
equally with or prior to such debentures unless it has maintained an earnings
coverage of 1.75 for interest charges (excluding extraordinary items) for a
period of any 12 consecutive months out of the 15-month period prior to the date
of proposed issuance. As a result of the 1993 and 1994 business restructuring
charges (see Note R), beginning in March 1994, New York Telephone did not meet
the earnings coverage requirement. As of December 31, 1994 and 1995, New York
Telephone met the earnings coverage requirement.
<PAGE>
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NYNEX 1995 Annual Report Notes to Consolidated Statements 41
- --------------------------------------------------------------------------------
On November 10, 1995, NYNEX and NYNEX Credit Company ("Credit Company")
entered into a $2.75 billion unsecured revolving credit facility, with Chemical
Bank as the administrative agent. (Credit Company may borrow up to $300 million
under this facility.) Further, NYNEX may request an increase in the aggregate
commitments under the facility of up to $500 million. The initial term is for
five years, but the borrowers may request two extensions of the facility, in
each case for an additional year. Currently, a fee of .075% per annum is paid by
NYNEX on the aggregate outstanding commitments. Under the terms of the
agreement, the proceeds may be used to fund working capital and/or any lawful
corporate purposes, including support of outstanding commercial paper. NYNEX had
no borrowings under this credit facility at December 31, 1995. However, $1.9
billion of outstanding commercial paper borrowings was classified as Long-term
debt at December 31, 1995 and presented in "Other" in the table above because
NYNEX has the intent to refinance the commercial paper borrowings on a long-term
basis and has the ability to do so under the credit facility.
At December 31, 1995, the following unissued debt securities were
registered with the Securities and Exchange Commission (the "SEC"): $250 million
of New York Telephone unsecured securities, $500 million of New England
Telephone unsecured securities, and $637 million of NYNEX Capital Funding
medium-term debt securities (when issued, these securities will be guaranteed by
NYNEX).
At December 31, 1995, NYNEX had $950 million of unissued, unsecured debt
and equity securities registered with the SEC. The proceeds from the sale of
these securities would be used to provide funds to NYNEX and/or NYNEX's
nontelephone subsidiaries for their respective general corporate purposes.
I. SHORT-TERM DEBT
- ------------------
NYNEX's short-term borrowings and related weighted average interest rates are as
follows:
Weighted
average
interest
rates
December 31, (In millions) 1995 1994 1995 1994
- --------------------------------------------------------------------------------
Commercial paper and short-term debt $ -- $1,987.4 6.0% 6.0%
Debt maturing within one year 497.8 132.3 7.3% 6.8%
Current portion of long-term
capital lease obligations 8.8 9.1
- --------------------------------------------------------------------------------
Total short-term debt $506.6 $2,128.8
- --------------------------------------------------------------------------------
As previously discussed, at December 31, 1995, NYNEX had an unused line of
credit amounting to $2.75 billion through an unsecured revolving credit facility
with an initial term of five years. This line of credit, together with cash and
temporary cash investments, may be used to support outstanding commercial paper.
As such, $1.9 billion of outstanding commercial paper borrowings was classified
as Long-term debt at December 31, 1995.
$350 million of New England Telephone's Debentures are repayable on November 15,
1996, in whole or in part, at the option of the holder, and as such are
classified as Short-term debt at December 31, 1995.
J. MINORITY INTEREST
- --------------------
December 31, (In millions) 1995 1994
- --------------------------------------------------------------------------------
Portion subject to redemption requirements $731.2 $390.5
Portion non-redeemable 346.2 176.7
- --------------------------------------------------------------------------------
Total $1,077.4 $567.2
- --------------------------------------------------------------------------------
FINANCING OF OPERATIONS IN THE UNITED KINGDOM
On December 31, 1993, a financing arrangement was entered into for the southern
cable franchises in the United Kingdom (the "South"). Prior to this financing,
two partnerships were formed: South CableComms, L.P. ("SC"), and Chartwell
Investors L.P. ("Chartwell"), both Delaware limited partnerships. These
partnerships and their subsidiaries are legal entities separate and distinct
from NYNEX, as are their assets and liabilities. Two wholly-owned subsidiaries
of NYNEX contributed assets, consisting of cash and stock, with an aggregate
initial market value of $130 million and a book value of $109 million at
December 31, 1993, to SC in exchange for general partnership interests, and
Chartwell contributed $20 million in cash to SC in exchange for a limited
partner interest.
Prior to March 31, 1995, the financing arrangements for the South were similar
in substance to, but structurally different from, those for the northern cable
franchises in the United Kingdom (the "North"). On March 31, 1995, the financing
structure for the South was changed to closely resemble the structure for the
North (see explanation of transaction below) as it existed at December 1994. In
preparation for this
<PAGE>
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42 Notes to Consolidated Statements NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
restructure, SC distributed to its partners intercompany loans receivable of
$295 million in the form of dividends. These loans were payable to SC from the
southern cable franchises. Of these dividends, $214 million was distributed to
Chartwell and $81 million was distributed to the two wholly-owned subsidiaries
of NYNEX (the "NYNEX South general partners"). The NYNEX South general partners
in turn distributed the $81 million to NYNEX, who in turn contributed it to two
other wholly-owned NYNEX subsidiaries (the "NYNEX South members").
In connection with the financing restructure to facilitate an initial public
offering ("IPO"), a new entity was formed, South CableComms L.L.C. ("SCLLC"), a
Delaware limited liability company. Chartwell contributed its existing
partnership interests in SC having a book value of $8 million and loans of $214
million to SCLLC, and, as a result, is no longer a partner in SC. The NYNEX
members contributed the aforementioned $81 million of loans to SCLLC.
All of the partners of Chartwell and members of SCLLC have committed to make
future capital contributions as required by the various documents, and with
respect to Chartwell's commitment, such contributions must be matched by NYNEX
subsidiaries. As of December 31, 1995, total cumulative contributions to SCLLC
were as follows: $200 million from the NYNEX South members and $295 million from
Chartwell; and total cumulative contributions to SC were as follows: $474
million from the NYNEX South general partners and $128 million from SCLLC.
SC's purpose is to manage and protect a portfolio of assets, which is being used
to fund the construction, operations and working capital requirements of cable
television and telecommunications systems in certain licensed areas in the
South. SCLLC's purpose is to provide funding arrangements to SC and its
operating companies in the South with the proceeds of capital contributions
received from its members. A wholly-owned subsidiary of NYNEX manages and
controls the business and operations of SCLLC. SC and SCLLC are included in
NYNEX's consolidated financial statements, and Chartwell's interest in SCLLC is
reflected in "Minority interest, including a portion subject to redemption
requirements."
NYNEX also contributed cash to Chartwell in exchange for an initial 20% limited
partnership interest. The purpose of Chartwell is to invest up to $426 million
(based on the applicable year-end exchange rate) over a five-year contribution
term in SCLLC, and the funding of Chartwell consists of equity and amounts made
available to it, subject to the satisfaction of funding conditions, under
existing arrangements with financial institutions. A portion of the funding is
collateralized by Chartwell's assets, is non-recourse to the partners of
Chartwell, and bears interest at market rates. It includes representations,
warranties, covenants and events of default customary in financings of this
nature. The remaining term of the funding arrangement is eight years, with
repayments beginning in 1999, and Chartwell is entitled to receive cumulative
preferential distributions from SCLLC sufficient to meet these repayment
requirements. The redemption requirements are $30 million for 1999 and $52
million for 2000. For financial reporting purposes, NYNEX's investment in
Chartwell is reflected in "Long-term investments" and is accounted for under the
equity method.
On December 19, 1994, a financing arrangement was entered into for the North.
Prior to this financing, three entities were formed: North CableComms L.P.
("NCLP"), a Delaware limited partnership; North CableComms, L.L.C. ("NCLLC"), a
Delaware limited liability company; and Winston Investors L.L.C. ("Winston"), a
Delaware limited liability company. These entities and their subsidiaries are
legal entities separate and distinct from NYNEX, as are their assets and
liabilities. Three subsidiaries of NYNEX ("NYNEX North general partners")
contributed stock to NCLP in exchange for general partnership interests (with an
aggregate market value of $827 million and an aggregate book value of $142
million at December 19, 1994). NCLLC contributed $79 million in cash to NCLP in
exchange for a limited partnership interest. Two wholly-owned subsidiaries of
NYNEX ("NYNEX North members") contributed in the aggregate $82 million in cash,
and Winston contributed $225 million in cash, each for member interests in
NCLLC.
All of the partners of NCLP and members of NCLLC have committed to make future
capital contributions as required by the various documents, and with respect to
Winston's commitment, such contributions must be matched by NYNEX contributions.
As of December 31, 1995, total cumulative contributions to NCLLC were as
follows: $214 million from the NYNEX North members and $385 million from
Winston; and total cumulative contributions to NCLP were as follows: $401
million from the NYNEX North general partners and $209 million from NCLLC.
NCLP's purpose is to manage and protect a portfolio of assets, which is being
used to fund the construction, operations and working capital requirements of
cable television and telecommunications systems in certain licensed areas in the
North. NCLLC's pur-
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Notes to Consolidated Statements 43
- --------------------------------------------------------------------------------
pose is to provide funding arrangements to NCLP and its operating companies in
the North with the proceeds of capital contributions received from its members.
A wholly-owned subsidiary of NYNEX manages and controls the business and
operations of NCLLC. NCLP and NCLLC are included in NYNEX's consolidated
financial statements, and Winston's interest in NCLLC is reflected in "Minority
interest, including a portion subject to redemption requirements."
NYNEX also contributed cash to Winston in exchange for an initial 20% equity
interest. The purpose of Winston is to invest up to $1.1 billion (based on the
applicable year-end exchange rate) over a five-year contribution term in NCLLC,
and the funding of Winston consists of equity and amounts available to it,
subject to the satisfaction of funding conditions, under existing arrangements
with financial institutions. A portion of the funding is collateralized by
Winston's assets, is non-recourse to the partners of Winston, and bears interest
at market rates. It includes representations, warranties, covenants and events
of default customary in financings of this nature. The remaining term of the
funding arrangement is nine years, with repayments beginning in 2000, and
Winston is entitled to receive cumulative preferential distributions from NCLLC
sufficient to meet these repayment requirements. The redemption requirements are
$36 million for 2000. For financial reporting purposes, NYNEX's investment in
Winston is reflected in "Long-term investments" and is accounted for under the
equity method.
NYNEX provides certain performance guarantees to Chartwell and Winston, and for
the first five years, a completion guarantee that requires a specified number of
homes be passed by the network in the South and in the North by December 31,
1998 and 1999, respectively (subject to one-year extensions). At December 31,
1995 and 1994, the related construction program was progressing toward the
appropriate targets for release from the completion guarantee. In order to gain
release from the completion guarantee, NYNEX must demonstrate that various
financial ratios, based on, among other things, operating cash flows, and other
tests such as material compliance with communication licenses, are satisfied. If
the construction program does not meet such tests and these shortfalls are not
cured within a specified time period, the completion guarantee will necessitate
payments to be made directly to Chartwell or Winston, as appropriate. NYNEX also
provides indemnifications to these entities, among others, in respect of certain
liabilities, including all liability, loss or damage incurred as a result of any
breach of the agreements set forth, and tax indemnifications relating to events
prior to the creation of SC, SCLLC, NCLP and NCLLC. In addition, NYNEX is
required to maintain certain financial and operating standards and may, at any
time, elect to purchase the equity interest in Chartwell and Winston on certain
terms.
During February 1995, two entities were formed: NYNEX CableComms Group PLC ("UK
CableComms"), a public limited liability company incorporated under the laws of
England and Wales, and NYNEX CableComms Group Inc. ("US CableComms"), a Delaware
corporation (both being referred to collectively as "CableComms"). Prior to the
IPO discussed below, both were wholly-owned subsidiaries of NYNEX. Both are
separate and distinct legal entities. The sole assets of UK CableComms and US
CableComms are 90% and 10%, respectively, of the outstanding stock of NYNEX
CableComms Holdings, Inc. which holds, through various subsidiaries and
partnerships, interests in cable television and telecommunications franchises,
assets and operations in the United Kingdom.
An IPO was completed in June 1995 of 305 million equity units of CableComms.
These units are traded as "stapled units" and are comprised of one ordinary
share of UK CableComms and one share of common stock of US CableComms (the
"Combined Offering"). Of the 305 million units issued, 170,222,000 were issued
as units at a price of 137 pence per unit in the United Kingdom, and 13,477,800
were issued as American Depository Shares ("ADS") at $21.81 per ADS in the
United States, each ADS comprising 10 units. The Combined Offering represented
33% of the total units outstanding, with NYNEX retaining the balance. Net
proceeds from the offering were approximately $610 million. CableComms is using
the proceeds to repay outstanding revolving loans under credit facilities, to
fund a portion of the cost of construction of its network, and for operating
cash flow and interest.
NYNEX's policy is to recognize in income any gains or losses related to the sale
of stock by an investee. NYNEX recognized an after-tax gain on the IPO of $155.1
million in the second quarter of 1995, net of $109.0 million in deferred taxes,
in recognition of the net increase in the value of NYNEX's investment in
CableComms.
OTHER FINANCING
In November 1993, NYNEX invested $1.2 billion in Viacom Inc. ("Viacom") for 24
million shares of Viacom Series B Cumulative Preferred Stock
<PAGE>
- --------------------------------------------------------------------------------
44 Notes to Consolidated Statements NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
("Viacom Preferred"), carrying an annual dividend of five percent. The stock is
convertible into shares of Viacom Class B non-voting common stock at a price of
$70 per share.
In December 1995, NYNEX entered into a contract for the non-recourse
securitization that permits a monetization of approximately 50% of its
investment in the Viacom Preferred, of which 8% was implemented in 1995. NYNEX
realized proceeds of $100 million from this monetization which were used to
reduce outstanding commercial paper. In connection with this transaction, NYNEX
has invested in three newly formed Delaware limited liability companies: a
majority owned and controlled subsidiary, "Weatherly Holdings L.L.C.", and its
50% owned and controlled subsidiary, "Kipling Associates L.L.C." (Weatherly
Holdings L.L.C. and Kipling Associates L.L.C. are collectively referred to as
the "Monetization Subsidiaries"), and a third-party owned and controlled entity,
"Mandalay Investors L.L.C." (the "Outside Member"), which has invested in the
Monetization Subsidiaries. These companies are legal entities separate and
distinct from NYNEX, as are their assets and liabilities.
At the time of formation, NYNEX contributed, in the aggregate, two million
shares of Viacom Preferred with a book value of $100 million and $35 million in
cash for its member interests in the Monetization Subsidiaries. The Outside
Member contributed $100 million in cash for its member interest in Kipling
Associates L.L.C. and $10 thousand in cash for its member interest in Weatherly
Holdings L.L.C. The Monetization Subsidiaries have approximately $12 million in
cash which has been loaned to NYNEX, cash equivalents, the Viacom Preferred,
certain intercompany financial obligations and approximately 2.4 million shares
of NYNEX common stock. The purpose of the Monetization Subsidiaries is to manage
and protect their financial assets for sale or distribution at a later date. The
Monetization Subsidiaries are included in NYNEX's consolidated financial
statements, and the Outside Member's interest in the Monetization Subsidiaries
is reflected in "Minority interest, including a portion subject to redemption
requirements." NYNEX has invested $10 thousand in cash in the Outside Member for
a less than 1% ownership interest, which is accounted for under the cost method
and is included in "Long-term investments."
In connection with the monetization of the Viacom Preferred, NYNEX has provided
certain indemnifications to the Monetization Subsidiaries and the Outside Member
including certain tax indemnifications. The term of the monetization transaction
is five years at which time the Outside Member's interest in the Monetization
Subsidiaries will be redeemed through the liquidation of the Monetization
Subsidiaries' assets. Under the terms of an extension agreement, NYNEX has the
ability and intends to increase the amount of the monetization up to $600
million by March 31, 1996 under terms and conditions that are substantially the
same as the December 1995 transaction. NYNEX may, upon meeting certain funding
requirements, elect to purchase the member interests of the Outside Member in
the Monetization Subsidiaries or terminate the transaction and cause the
liquidation of the assets of the Monetization Subsidiaries.
K. STOCKHOLDERS' EQUITY
- -----------------------
PREFERRED STOCK
NYNEX's certificate of incorporation provides authority for the issuance of 75
million shares of Preferred stock, $1.00 par value, in one or more series with
such designations, preferences, rights, qualifications, limitations, and
restrictions as NYNEX's Board of Directors may determine.
COMMON STOCK
On July 15, 1993, the Board of Directors of NYNEX declared a two-for-one common
stock split in the form of a 100 percent stock dividend, payable September 15,
1993 to holders of record at the close of business on August 16, 1993.
As of November 1, 1993, NYNEX discontinued purchasing shares of its common stock
and began issuing new shares in connection with employee savings plans, the
Dividend Reinvestment and Stock Purchase Plan, stock compensation plans, and
stock option plans.
DIVIDENDS DECLARED
FROM ADDITIONAL PAID-IN CAPITAL
The second, third, and a portion of the fourth quarter 1995 dividends were
declared from Additional paid-in capital.
SHAREHOLDER RIGHTS AGREEMENT
In October 1989, NYNEX adopted a Shareholder Rights Agreement, pursuant to which
shareholders received a dividend distribution of one right for each outstanding
share of NYNEX's common stock. As a result of the two-for-one common stock
split, the rights have been adjusted so that shareholders
<PAGE>
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NYNEX 1995 Annual Report Notes to Consolidated Statements 45
- --------------------------------------------------------------------------------
receive one right for every two shares of common stock. Each right entitles the
shareholder to buy 1/100 of a share of $1.00 par value Series A Junior
Participating Preferred Stock from NYNEX at an exercise price of $250 per right.
5 million shares of this Preferred Stock have been authorized, with 3 million
shares reserved for exercise of the rights. The rights, which are subject to
adjustment, will not be exercisable or separable from the common stock until ten
days following a public announcement that a person or group has acquired
beneficial ownership of 15% or more of NYNEX's outstanding common stock or ten
business days following the commencement of, or public announcement of the
intent to commence, a tender or exchange offer by a beneficial owner of 15% or
more of the outstanding common stock.
If any person becomes the beneficial owner of 15% or more of the outstanding
common stock, each holder of a right will receive, upon exercise at the right's
then current exercise price, common stock having a value equal to twice the
exercise price. If NYNEX is acquired in a merger or business combination, or if
50% or more of NYNEX's assets or earning power is sold, each right holder will
receive, upon exercise at the right's then current exercise price, common stock
in the new company having a value equal to twice the exercise price of the
right.
NYNEX may exchange rights for shares of common stock or redeem rights in whole
at a price of $.01 per right at any time prior to their expiration on October
31, 1999.
LEVERAGED STOCK OWNERSHIP PLAN
In February 1990, NYNEX established a leveraged employee stock ownership plan
("LESOP") and loaned $450 million to the LESOP Trust ("internal LESOP note").
The LESOP Trust used the proceeds to purchase, at fair market value, 5.6 million
shares of NYNEX's common stock held in treasury. NYNEX issued and guaranteed
$450 million of 9.55% Debentures, the proceeds of which were principally used to
repurchase 5.4 million shares in the open market, completing the stock
repurchase plan. The Debentures require payments of principal annually and are
due May 1, 2010. Interest payments are due semiannually. The Debentures and the
internal LESOP note are recorded as Long-term debt and as Deferred compensation,
respectively. Deferred compensation will be reduced as shares are released and
allocated to participants.
NYNEX maintains savings plans that cover substantially all of its employees.
Under these plans, NYNEX matches a certain percentage of eligible employee
contributions. Under provisions of the Savings Plan for Salaried Employees,
NYNEX's matching contributions are allocated to employees in the form of NYNEX
stock from the LESOP Trust, based on the proportion of principal and interest
paid by the LESOP Trust in a year to the remaining principal and interest due
over the life of the internal LESOP note. Compensation expense is recognized
based on the shares allocated method. LESOP shares are not considered
outstanding until they are allocated to participants.
NYNEX's matching contributions to the savings plans and any change in the
required contribution as a result of leveraging this obligation are recorded as
compensation expense. Compensation expense applicable to the savings plans for
1995, 1994 and 1993 was $77.2, $88.2 and $81.3 million, respectively, and has
been reduced by $25.9, $26.1, and $26.2 million, respectively, for the dividends
paid on LESOP shares used to service the internal LESOP note. As of December 31,
1995 and 1994, the number of shares allocated to the LESOP were 2.2 and 1.9
million, respectively, and the number of shares held by the LESOP for future
allocation were 8.6 and 9.1 million, respectively.
L. STOCK OPTION PLANS
- ---------------------
NYNEX has stock option plans for key management employees under which options to
purchase NYNEX common stock are granted at a price equal to or greater than the
market price of the stock at the date of grant. The 1990 Stock Option Plan,
which expired on December 31, 1994, permitted the grant of options through
December 1994 to purchase up to 4 million shares. In January 1995, NYNEX
established the 1995 Stock Option Plan, that permits the grant of options no
later than December 31, 1999 to purchase up to 20 million shares of common
stock; options may not be exercisable for a period less than one year or greater
than ten years from date of grant.
Both the 1990 and the 1995 Stock Option Plans for key management employees allow
for the granting of stock appreciation rights ("SARs") in tandem with options
granted. Upon exercise of a SAR, the holder may receive shares of common stock
or cash equal to the excess of the market price of the common stock at the
exercise date over the option price. SARs may be exercised in lieu of the
underlying option only when those options become exercisable.
<PAGE>
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46 Notes to Consolidated Statements NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
Effective March 31, 1992, NYNEX established stock option plans for nonmanagement
employees and for management employees other than those eligible to participate
in the 1990 and 1995 Stock Option Plans. Employees were granted options, with
the number of options varying according to employee level, to purchase a fixed
number of shares of NYNEX common stock at the market price of the stock on the
grant date. Fifty percent of the options could be exercised one year from the
grant date, with the remaining fifty percent exercisable two years from the
grant date. These options expire ten years from the grant date. In October 1994
and January 1996, employees were granted additional options under these plans.
The following summarizes the activity for those shares under option under the
various stock option plans including the related SARs:
Price Range
Stock Options Shares Per Share
- --------------------------------------------------------------------------------
Outstanding at December 31, 1992 9,453,140 $27.60 to $88.13
Granted prior to stock split 806,891 $70.63 to $88.88
Exercised prior to stock split (644,196) $31.34 to $88.13
Canceled prior to stock split (79,473) $69.13 to $88.13
Stock split 9,519,950
Granted after stock split 16,595 $42.32 to $46.07
Exercised after stock split (281,500) $16.50 to $44.07
Canceled after stock split (106,605) $21.91 to $44.07
SSI net activity* (16,412) $13.80 to $18.98
- --------------------------------------------------------------------------------
Outstanding at December 31, 1993 18,668,390 $13.80 to $46.07
Granted 14,724,360 $37.94 to $39.88
Exercised (261,131) $21.91 to $36.13
Canceled (716,391) $32.97 to $44.07
- --------------------------------------------------------------------------------
Outstanding at December 31, 1994 32,415,228 $24.69 to $46.07
Granted 3,169,470 $33.00 to $50.19
Exercised (3,559,057) $24.69 to $42.66
Canceled (353,216) $35.32 to $44.07
- --------------------------------------------------------------------------------
Outstanding at December 31, 1995 31,672,425 $32.75 to $50.19
- --------------------------------------------------------------------------------
* NYNEX acquired Stockholder Systems, Inc. ("SSI") in 1990, and SSI employees
could exercise SSI options for NYNEX common stock. SSI was sold in 1994, and
SSI options are no longer exercisable.
For the year ended December 31,
(Number of shares) 1995 1994 1993
- --------------------------------------------------------------------------------
Stock appreciation rights:
Outstanding at
beginning of year 1,864 1,864 29,247
Granted -- -- --
Exercised (1,864) -- (7,551)
Canceled -- -- (23,571)
Stock split -- -- 3,739
- --------------------------------------------------------------------------------
Outstanding at end of year -- 1,864 1,864
- --------------------------------------------------------------------------------
There were 20,977,556 and 16,604,260 stock options exercisable at December 31,
1995 and 1994, respectively. In January 1996, options to purchase approximately
11 million shares of common stock were granted under the stock option plans
established on March 31, 1992, and options to purchase approximately 5 million
shares of common stock were granted under the 1995 Stock Option Plan.
M. LEASES
- ---------
NYNEX leases certain facilities and equipment used in its operations. Rental
expense was $381.4, $310.5 and $337.0 million for 1995, 1994 and 1993,
respectively. At December 31, 1995, the minimum lease commitments under
noncancelable leases for the periods shown are as follows:
(In millions) Operating Capital
- --------------------------------------------------------------------------------
1996 $142.0 $19.7
1997 113.4 15.8
1998 102.8 14.9
1999 86.4 11.5
2000 69.0 11.3
Thereafter 389.7 381.6
- --------------------------------------------------------------------------------
Total minimum lease payments $903.3 454.8
Less: executory costs -- 11.4
- --------------------------------------------------------------------------------
Net minimum lease payments -- 443.4
Less: interest -- 370.8
- --------------------------------------------------------------------------------
Present value of net minimum lease payments -- $72.6
- --------------------------------------------------------------------------------
Credit Company is the lessor in leveraged and direct financing lease agreements
under which commercial aircraft, railroad cars, industrial equipment, power
generators, residential real estate, telecommunications and computer equipment
are leased for terms of 3 to 35 years. Minimum lease payments receivable
represent unpaid rentals, less principal and interest on third-party
non-recourse debt relating to leveraged lease transactions. Since Credit Company
has no general liability for this debt, the related principal and interest have
been offset against the minimum lease payments receivable. Minimum lease
payments receivable are subordinate to the debt, and the debt holders have a
security interest in the leased equipment.
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Notes to Consolidated Statements 47
- --------------------------------------------------------------------------------
At December 31, 1995 and 1994, the net investment in leveraged leases was $407.7
and $406.7 million, respectively, and in direct financing leases was $186.1 and
$133.7 million, respectively. The components of Credit Company's net investment
in these leases are included in Deferred charges and other assets and are as
follows:
December 31, (In millions) 1995 1994
- --------------------------------------------------------------------------------
Minimum lease payments receivable $1,826.7 $1,561.2
Unguaranteed residual value 1,165.2 1,027.6
Initial direct costs 1.3 1.2
Less: Unearned income 1,301.6 1,127.2
Deferred income taxes 1,073.5 900.2
Allowance for uncollectibles 24.3 22.2
- --------------------------------------------------------------------------------
Net investment $ 593.8 $ 540.4
- --------------------------------------------------------------------------------
At December 31, 1995, future minimum lease payments receivable, in millions, in
excess of debt service requirements on non-recourse debt related to leveraged
and direct financing leases, are collectible as follows: $70.7 in 1996; $70.9 in
1997; $68.0 in 1998; $59.6 in 1999; $44.5 in 2000; and $1,513.0 thereafter.
N. FINANCIAL INSTRUMENTS
- ------------------------
RISK MANAGEMENT, OFF-BALANCE-SHEET RISK
AND CONCENTRATIONS OF CREDIT RISK
NYNEX has entered into transactions in financial instruments with
off-balance-sheet risk, to reduce its exposure to market and interest rate risk
in its short-term and long-term securities. NYNEX entered into various interest
rate, currency, and basis swap transactions, with an aggregate notional amount
of $2.9 billion and $2.3 billion at December 31, 1995 and 1994, respectively, to
manage interest rate, foreign exchange rate, and tax exposures. These
transactions mature at various dates from 1995 through 2004.
Risk in these transactions involves both risk of counterparty nonperformance
under the contract terms and risk associated with changes in market values,
interest rates, and foreign exchange rates. The counterparties to these
contracts consist of major financial institutions and organized exchanges. NYNEX
continually monitors its positions and the credit ratings of its counterparties
and limits the amount of contracts it enters into with any one party. While
NYNEX may be exposed to credit losses in the event of nonperformance by these
counterparties, it does not anticipate such losses, due to the aforementioned
control procedures. The settlement of these transactions is not expected to, but
may, have a material effect upon NYNEX's financial position or results of
operations.
A description of NYNEX's financial instruments is presented in Management's
Discussion and Analysis on pages 20-22.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of NYNEX's
financial instruments at December 31, 1995 and 1994. Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments," defines fair value as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than a forced
liquidation or sale.
1995 1994
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
- --------------------------------------------------------------------------------
Non-Derivatives:
Long-term investments:
Practicable to estimate fair value $ 492.1 $1,055.8 $ 492.2 $ 990.8
Not practicable 1,296.6 1,296.6 1,206.0 1,206.0
Long-term debt 7,336.3 7,712.9 7,714.6 7,083.5
Derivatives:*
Assets 11.4 18.2 11.8 18.3
Liabilities (36.9) (50.0) (7.5) (100.5)
- --------------------------------------------------------------------------------
* The carrying amounts in the table are included in Deferred charges and other
assets, Other current liabilities, and Other long-term liabilities and
deferred credits.
The fair value of the derivative contracts includes the remaining unamortized
costs of foreign exchange hedges, which are ($34.9) and ($43.6) million for 1995
and 1994, respectively. These values reflect the implicit incremental borrowing
costs associated with NYNEX's overseas investments in the United Kingdom and
Thailand. The following methods and assumptions were used to estimate the fair
value of each type of financial instrument for which estimation was practicable.
LONG-TERM INVESTMENTS
The estimated fair value of some investments accounted for under the cost method
is based on quoted market prices for those or similar investments. For other
investments for which there are no quoted market prices, a reasonable estimate
of fair market value could not be made without incurring excessive costs. It is
not practicable to estimate the fair value of NYNEX's investment in the Viacom
Preferred or NYNEX's investments in untraded entities because of the nature of
the investments. Accordingly, the carrying value is presented as the fair value.
<PAGE>
- --------------------------------------------------------------------------------
48 Notes to Consolidated Statements NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
LONG-TERM DEBT
The estimated fair value of long-term debt is based on quoted market prices or
discounted future cash flows using the weighted average coupon rate and current
interest rates.
DERIVATIVES
The estimated fair value of most derivatives is based on amounts NYNEX would
receive or pay to terminate such agreements taking into account current
mid-market rates. The estimated fair value of the basis swaps is based on the
amounts NYNEX would pay to replicate such agreements taking into account current
rates.
O. ADDITIONAL FINANCIAL INFORMATION
- -----------------------------------
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Taxes other than income:
Property $ 359.8 $351.9 $ 399.6
Gross receipts 508.2 495.3 500.1
Payroll-related 65.9 65.4 65.1
Other 81.7 80.6 74.1
- --------------------------------------------------------------------------------
Total $1,015.6 $993.2 $1,038.9
- --------------------------------------------------------------------------------
December 31, (In millions) 1995 1994
- --------------------------------------------------------------------------------
Accounts payable:
Trade $ 981.4 $1,146.5
Taxes 118.3 97.9
Compensated absences 310.2 305.9
Dividends 255.8 249.9
Payroll 129.5 131.3
Interest 131.8 125.6
Other 975.2 611.1
- --------------------------------------------------------------------------------
Total $2,902.2 $2,668.2
- --------------------------------------------------------------------------------
Other current liabilities:
Advance billings and
customers' deposits $ 281.5 $ 291.3
Deferred income taxes 6.3 1.1
Other 295.9 761.1
- --------------------------------------------------------------------------------
Total $ 583.7 $1,053.5
- --------------------------------------------------------------------------------
Total research and development costs charged to expense for 1995, 1994 and 1993
were $279.1, $159.7 and $162.8 million, respectively.
In 1995, 1994 and 1993, AT&T Corp. ("AT&T") provided approximately 14%, 15% and
16%, respectively, of NYNEX's total operating revenues, primarily Network access
revenues and Other revenues from billing and collection services performed by
the telephone subsidiaries for AT&T.
Telesector Resources owns a one-seventh interest in Bell Communications
Research, Inc. ("Bellcore"). Bellcore furnishes technical and support services
to NYNEX relating to exchange telecommunications and exchange access services.
For 1995, 1994 and 1993, NYNEX recorded charges of $93.8, $112.2 and $128.5
million, respectively, in connection with these services.
P. SUPPLEMENTAL CASH FLOW INFORMATION
- -------------------------------------
The following information is provided in accordance with Statement of Financial
Accounting Standards No. 95, "Statement of Cash Flows":
December 31, (In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Income tax payments $ 478.3 $519.4 $591.8
- --------------------------------------------------------------------------------
Interest payments $ 740.7 $630.0 $623.6
- --------------------------------------------------------------------------------
Non-cash transactions:
Additions to property,
plant and equipment
under capital lease
obligations $ .3 $ 10.6 $ --
- --------------------------------------------------------------------------------
Contribution of certain
cellular net assets in
exchange for an
equity investment in
Bell Atlantic
NYNEX Mobile cellular
partnership (see Note F) $ 611.6 $ -- $ --
- --------------------------------------------------------------------------------
Common Stock issued for
dividend reinvestment
and stock purchase plan
and stock compensation
plans $ 110.2 $107.1 $ 29.6
- --------------------------------------------------------------------------------
Short-term debt classified
as Long-term debt
(see Note H) $1,939.4 $ -- $588.6
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NYNEX 1995 Annual Report Notes to Consolidated Statements 49
- --------------------------------------------------------------------------------
Q. REVENUES SUBJECT TO POSSIBLE REFUND
- --------------------------------------
Several state and federal regulatory matters, including affiliate transaction
issues in New York Telephone's 1990 intrastate rate case ($188.0 million), may
possibly require the refund of a portion of the revenues collected in the
current and prior periods. As of December 31, 1995, the aggregate amount of such
revenues that was estimated to be subject to possible refund was approximately
$260.7 million, plus related interest. The outcome of each pending matter, as
well as the time frame within which each will be resolved, is not presently
determinable.
R. BUSINESS RESTRUCTURING
- -------------------------
In 1995 and 1994, $514.1 and $693.5 million, respectively, of pretax pension
enhancement charges were recorded. These charges are a portion of an estimated
$2.0 billion of pretax charges to be recorded for pension enhancements as
employees leave NYNEX through retirement incentives. The pension enhancement
charges were included in the Consolidated Statements of Income as Selling,
general and administrative.
In the fourth quarter of 1993, $2.1 billion of pretax business restructuring
charges were recorded, primarily related to efforts to redesign operations and
work force reductions. These charges include: $1.1 billion for severance and
postretirement medical costs; $626 million for re-engineering service delivery;
$283 million for sale or discontinuance of information product and services
businesses; and $106 million for restructuring at other nontelephone
subsidiaries. The restructuring charges were included in the Consolidated
Statements of Income as follows: Maintenance and support -- $192 million;
Marketing and customer services -- $53 million; Selling, general and
administrative -- $1.8 billion; and Other income (expense) - net -- $31 million.
S. LITIGATION AND OTHER CONTINGENCIES
- -------------------------------------
Various legal actions and regulatory proceedings are pending that may affect
NYNEX. While counsel cannot give assurance as to the outcome of any of these
matters, in the opinion of Management based upon the advice of counsel, the
ultimate resolution of these matters in future periods is not expected to have a
material effect on NYNEX's financial position but could have a material effect
on annual operating results.
<PAGE>
- --------------------------------------------------------------------------------
50 Supplementary Information NYNEX 1995 Annual Report
- --------------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
For the quarter ended
(In millions, except per share amounts) March 31, June 30, September 30, December 31,
- -----------------------------------------------------------------------------------------------------
1995
<S> <C> <C> <C> <C>
Operating revenues $3,354.2 $3,495.6 $3,252.8 $3,304.3
Operating income $573.0 $396.7 $627.9 $494.6
Earnings before extraordinary item $250.2 $240.8 $342.9 $235.6
Extraordinary item for the discontinuance
of regulatory accounting principles,
net of taxes $ -- $(2,919.4) -- $ --
Net income (loss) $250.2 $(2,678.6) $ 342.9 $ 235.6
Earnings per share before
extraordinary item $ .59 $ .56 $ .80 $ .55
Extraordinary item per share $ -- $ (6.84) $ -- $ --
Earnings (loss) per share $ .59 $ (6.28) $ .80 $ .55
Dividends per share $ .59 $ .59 $ .59 $ .59
Market price:*
High $ 41.50 $ 43.125 $ 48.750 $ 54.000
Low $ 35.87 $ 39.375 $ 39.250 $ 46.000
- -----------------------------------------------------------------------------------------------------
1994
Operating revenues $3,273.3 $ 3,311.6 $3,330.8 $3,390.9
Operating income $ 595.5 $ 129.2 $ 583.0 $ 448.5
Net income $ 290.6 $ 1.2 $ 302.5 $ 198.3
Earnings per share $ .70 $ -- $ .72 $ .47
Dividends per share $ .59 $ .59 $ .59 $ .59
Market price:*
High $ 41.375 $ 39.750 $ 39.125 $ 39.750
Low $ 34.250 $ 33.250 $ 35.625 $ 36.250
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Market price obtained from the New York Stock Exchange-Composite
Transactions Index.
Results for the first, second, third and fourth quarters of 1995 include
$83.8, $165.9, $38.0 and $226.4 million, respectively, of pretax charges for
pension enhancements, which were reflected in operating expenses. The
after-tax effect of these charges was $53.8, $106.2, $23.7 and $143.1 million,
respectively.
Results for the second quarter of 1995 include the effects of the
discontinuance of regulatory accounting principles, recorded as an
extraordinary item (see Note B); a $264.1 million ($155.1 million after-tax)
"Gain on sale of stock by subsidiary" related to an initial public offering of
equity in NYNEX CableComms (see Note J); and $210.5 million ($155.0 million
after-tax) of special charges to meet various tax, benefit and legal
obligations and contingencies, $199.0 million of which was included in
operating expenses and $11.5 million of which was in Other income (expense) -
net. Results for the third quarter of 1995 include a $123.8 million ($65.8
million after-tax) net gain resulting primarily from the sale of certain NYNEX
Mobile assets and actuarial changes associated with BANM, and $102.6 million
($66.0 million after-tax) of special charges to meet various tax and legal
obligations and contingencies. The third quarter pretax effect was distributed
as follows: a $62.0 million gain in Other income (expense) - net, $39.0
million in operating expenses, and $1.8 million in interest expense. Results
for the fourth quarter of 1995 include a net $33.8 million of pretax credits
in operating expenses ($22.0 million after-tax) primarily due to revised
estimates associated with benefit accruals, and a $13.7 million ($8.9 million
after-tax) reduction in Interest expense on the revenue set aside as ordered
by the NYSPSC, partially offset by a $15.0 million ($9.7 million after-tax)
charge in operating expenses for a gross receipts tax settlement and a $17.4
million charge in Other income (expense) - net for an unrealized mark to
market valuation adjustment on a financial instrument.
In the third quarter of 1995, NYNEX deconsolidated certain assets and
liabilities of NYNEX Mobile, in exchange for an equity interest in BANM (see
Note F). For the third and fourth quarters of 1995, NYNEX's interest in BANM
is reported under the equity method. Results for the first quarter of 1995
include NYNEX Mobile operating revenues and operating expenses of $189.3 and
$174.5 million, respectively. Results for the second quarter of 1995 include
NYNEX Mobile operating revenues and operating expenses of $210.5 and $161.7
million, respectively.
In the third quarter of 1995, there was a change in the presentation of gross
receipts taxes that were collected from customers. In the first two quarters
of 1995, these taxes were included in operating revenues and expenses. In the
last two quarters, as a result of a tax law change, these taxes were no longer
required to be collected.
Results for the second, third and fourth quarters of 1994 include $449.3,
$31.2 and $213.0 million, respectively, of pretax charges for pension
enhancements, which were reflected in operating expenses. The after-tax effect
of these charges was $291.5, $20.5 and $140.8 million, respectively.
Results for the fourth quarter of 1994 include $51.9 million of pretax credits
to pension and medical expense associated with plan amendments and favorable
plan experience, and $30.1 million for research tax credits and federal and
state tax credits, partially offset by a $10.8 mill pretax charge for costs
associated with planned exits from media communication ventures. The total
pretax effect was distributed as follows: a $41.8 million benefit in operating
expenses, a $30.1 million benefit in income taxes and a $0.7 million charge in
Other income (expense) - net. The after-tax effect of these net benefits was
an increase in net income of $55.9 million, of which $1.2 million was
applicable to the fourth quarter.
For further discussion of these items, see Management's Discussion and
Analysis of Financial Condition and Results of Operations.
<PAGE>
[inside back cover]
<TABLE>
<CAPTION>
<S> <C> <C>
NYNEX NYNEX ASIA From outside the continen-
CORPORATE COMMUNICATIONS tal United States, call collect
OFFICERS Arthur J. Troy on (617) 575-2407.
President Hearing-impaired
IVAN SEIDENBERG share owners with access to a
Chairman and Chief NYNEX ASSET Telecommunications Device
Executive Officer MANAGEMENT COMPANY for the Deaf (TDD) may
William F. Heitmann dial 1 (800) 368-0328 toll
FREDERIC V. SALERNO President free for account information.
Vice Chairman
Finance & Business NYNEX CABLECOMMS GROUP GENERAL INFORMATION:
Development John F. Killian If you have questions or
President and Chief comments regarding
ALAN Z. SENTER Executive Officer NYNEX, or would like to
Executive Vice President receive the NYNEX "1995
and Chief Financial Officer NYNEX CREDIT COMPANY Profile and Statistics," addi-
Richard E. Lucey tional copies of the Annual
MORRISON DES. WEBB President Report or the Annual
Executive Vice President, Report on audiocassette,
General Counsel and NYNEX ENTERTAINMENT & direct your requests to:
Secretary INFORMATION SERVICES COMPANY
Walter I. Rickard NYNEX Corporation
ROBERT T. ANDERSON President Share Owner
Vice President Communications
Business Development NYNEX GLOBAL SYSTEMS 19th Floor
COMPANY 1095 Ave. of the Americas
President Daniel C. Petri New York, NY 10036
NYNEX Network Systems President
Company INVESTOR RELATIONS:
NYNEX INFORMATION Institutional investors,
JEFFREY A. BOWDEN RESOURCES COMPANY financial analysts and port-
Vice President Matthew J. Stover folio managers should direct
Strategy & Corporate President and questions to:
Assurance Chief Executive Officer
Allen F. Pattee
PETER M. CICCONE NYNEX SCIENCE & Corporate Director
Vice President TECHNOLOGY, INC. Investor Relations
Financial Operations Casimir S. Skrzypczak NYNEX Corporation
and Comptroller President 1095 Ave. of the Americas
New York, NY 10036
JOHN M. CLARKE Vice President (212) 730-6350
Vice President Network & Technology Planning
Law (continued on back cover)
NYNEX TRADE FINANCE
SAUL FISHER COMPANY
Vice President Richard W. Frankenheimer
Law President
PATRICK F.X. MULHEARN
Vice President SHARE OWNER
Public Relations INFORMATION
DONALD J. SACCO CORPORATE HEADQUARTERS:
Vice President NYNEX Corporation
Human Resources 1095 Ave. of the Americas
New York, NY 10036
THOMAS J. TAUKE (212) 395-2121
Vice President
Government Affairs 1996 ANNUAL MEETING:
NYNEX will hold its annual
COLSON P. TURNER meeting at the John
Vice President and Treasurer Hancock Hall in Boston,
Mass., on May 1, 1996, at
President 10:30 a.m.
NYNEX Capital Funding
Company SHARE OWNER SERVICES:
Let NYNEX Share Owner
Services help with your
OFFICERS OF account needs:
PRINCIPAL
OPERATING DIVIDEND REINVESTMENT
GROUPS AND STOCK PURCHASE PLAN
(DRISPP): Provides you
with a convenient way to
RICHARD W. BLACKBURN increase your stock holdings
President and at a minimal cost.
Group Executive
NYNEX Worldwide DIRECT DEPOSIT OF
Communications & DIVIDENDS: Deposit your
Media Group dividends via electronic
funds transfer to a desig-
RICHARD A. JALKUT nated account at your bank
President and or financial institution.
Group Executive
NYNEX ODD-LOT SALES PROGRAM:
Telecommunications Provides share owners own-
ing less than 100 shares with
DONALD B. REED a convenient way to sell
President and their NYNEX stock at a rea-
Group Executive sonable cost.
External Affairs &
Corporate Communications Inquiries on these stock-
related matters, as well as
ARNOLD J. ECKELMAN dividend payments, stock
Executive Vice President transfers and requests for
and Group Executive Form 10-K reports for
Quality Assurance NYNEX and its telephone
& Operations Support subsidiaries, should be
directed to NYNEX's trans-
JOSEPH C. FARINA fer agent and registrar, The
Vice President and First National Bank of
Group Executive Boston ("Bank of Boston"):
Process Re-engineering
& Assurance NYNEX Corporation
c/o Bank of Boston
MEL MESKIN P.O. Box 9175
Vice President Boston, MA 02205-9175
Finance and Treasurer 1 (800) 358-1133
NYNEX
Telecommunications
</TABLE>
<PAGE>
[back cover]
GOVERNMENTAL RELATIONS: STOCK EXCHANGE LISTINGS:
NYNEX Government Affairs Boston Stock Exchange
Suite 400 West Chicago Stock Exchange
1300 I Street, N.W. New York Stock Exchange
Washington, DC 20005 Pacific Stock Exchange
(202) 336-7900 Philadelphia Stock
Exchange
INDEPENDENT ACCOUNTANTS: Amsterdam Stock
Coopers & Lybrand L.L.P. Exchange
1301 Ave. of the Americas Basel Stock Exchange
New York, NY 10019 Geneva Stock Exchange
The International Stock
Exchange, London
Zurich Stock Exchange
Ticker Symbol: NYN
- --------------------------------------------------------------------------------
NYNEX is fully committed to equal employment opportunity for all employees and
applicants for employment.
We have a duty to ensure that there is no unlawful discrimination in
recruitment, hiring, termination, promotions, salary treatment or any other
condition of employment or career development, and that there is no harassment
of any employee on the basis of race, color, religion, national origin, sex,
age, marital status, sexual preference or orientation, disability, or status as
a special disabled veteran or veteran of the Vietnam era.
- --------------------------------------------------------------------------------
NYNEX BOARD
OF DIRECTORS
JOHN BRADEMAS
Dr. Brademas is president emeritus of New York University. He has been a NYNEX
director since 1991 and serves on the Audit Committee and the Public
Responsibility Committee.
RANDOLPH W. BROMERY
Dr. Bromery is president of Springfield College and commonwealth professor
emeritus of the University of Massachusetts at Amherst, and president of
Geoscience Engineering Corporation. He has been a NYNEX director since 1986 and
serves on the Audit Committee, Executive Committee and Public Responsibility
Committee.
RICHARD L. CARRION
Mr. Carrion is chairman, president and chief executive officer of BanPonce
Corporation. He has been a NYNEX director since 1995 and is a member of the
Audit Committee and Committee on Benefits.
LODEWIJK J.R. DE VINK
Mr. de Vink is president and chief operating officer of Warner-Lambert Company.
A NYNEX director since 1995, he is a member of the Committee on Benefits.
STANLEY P. GOLDSTEIN
Mr. Goldstein is chairman and chief executive officer of Melville Corporation.
He was elected to the NYNEX board in 1990 and serves on the Audit Committee and
the Finance Committee.
HELENE L. KAPLAN
Mrs. Kaplan is of counsel to Skadden, Arps, Slate, Meagher & Flom, a New York
City law firm. She was elected to the NYNEX board in 1990 and is a member of the
Committee on Benefits and the Public Responsibility Committee.
ELIZABETH T. KENNAN
Mrs. Kennan is president emeritus of Mount Holyoke College and has been a NYNEX
director since 1984. She serves on the Nominating and Board Affairs Committee
and chairs the Audit Committee.
EDWARD E. PHILLIPS
Mr. Phillips is retired chairman of New England Mutual Life Insurance Company.
He has served on the NYNEX board since 1983 and is a member of the Executive
Committee and Finance Committee and chairs the Nominating and Board Affairs
Committee.
HUGH B. PRICE
Mr. Price is president and chief executive officer of the National Urban League.
Elected to the NYNEX board in 1995, he is a member of the Audit Committee and
the Public Responsibility Committee.
FREDERIC V. SALERNO
Mr. Salerno is vice chairman - Finance and Business Development of NYNEX. He has
been a NYNEX director since 1991 and serves on the Finance Committee.
IVAN SEIDENBERG
Mr. Seidenberg is chairman and chief executive officer of NYNEX. He has been a
NYNEX director since 1991 and chairs the Executive Committee.
WALTER V. SHIPLEY
Mr. Shipley is chairman and chief executive officer of Chemical Banking
Corporation. A NYNEX board member since 1983, he serves on the Executive
Committee and Nominating and Board Affairs Committee and chairs the Finance
Committee.
JOHN R. STAFFORD
Mr. Stafford is chairman, president and chief executive officer of American Home
Products Corporation. He has been a NYNEX director since 1989, is a member of
the Finance Committee and chairs the Committee on Benefits.
NYNEX
1095 Avenue of the Americas
New York, NY 10036
Design: Belk Mignogna Associates, New York Illustration: Rosemary Webber
(C)1996 NYNEX Corporation All rights reserved NYNEX Recycles
Exhibit 21
MAJOR SUBSIDIARIES
(AS OF MARCH 1, 1996)
State or Country
Name of Organization
---- ---------------
New England Telephone and Telegraph Company New York
Telesector Resources Group, Inc.* Delaware
New York Telephone Company New York
Empire City Subway Company (Limited) New York
Telesector Resources Group, Inc.* Delaware
NYNEX Asset Management Company Delaware
NYNEX Capital Funding Company Delaware
NYNEX Credit Company Delaware
NYNEX Government Affairs Company Delaware
NYNEX Information Resources Company Delaware
NYNEX Science & Technology, Inc. Delaware
NYNEX Trade Finance Company Delaware
NYNEX Entertainment & Information Services Company Delaware
NYNEX Worldwide Services Group, Inc. Delaware
NYNEX Network Systems Company Delaware
NYNEX CableComms Group PLC England & Wales
NYNEX CableComms Group Inc. Delaware
* Telesector Resources Group, Inc. is a wholly-owned subsidiary of New York
Telephone Company and New England Telephone and Telegraph Company.
33
Exhibit (23)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following Registration
Statements of NYNEX Corporation of our reports dated February 5, 1996 on our
audits of the consolidated financial statements and financial statement schedule
of NYNEX Corporation and its subsidiaries as of December 31, 1995 and 1994, and
for each of the three years in the period ended December 31, 1995, which reports
are included or incorporated by reference in this Annual Report on Form 10-K:
o Registration Statement Nos. 2-94110, 33-16570, 33-27802 and 33-51897 on
Form S-8 relating to the NYNEX Corporation Savings and Security Plan;
o Post-Effective Amendment Nos. 1 and 2 to Registration Statement
No. 2-94110 on Form S-8 relating to the NYNEX Corporation Savings
and Security Plan;
o Registration Statement Nos. 2-95141, 33-23156 and 33-49105 on Form S-3
relating to the NYNEX Corporation Share Owner Dividend Reinvestment and
Stock Purchase Plan;
o Post-Effective Amendment Nos. 1 and 2 to Registration Statement
No. 2-95141 on Form S-3 relating to the NYNEX Corporation Share Owner
Dividend Reinvestment and Stock Purchase Plan;
o Registration Statement Nos. 2-95634, 2-95780, 33-21635 and 33-53477 on
Form S-8 relating to the NYNEX Corporation Savings Plan for Salaried
Employees;
o Post-Effective Amendment Nos. 1 and 2 to Registration Statement
No. 2-95780 on Form S-8 relating to the NYNEX Corporation Savings Plan
for Salaried Employees;
o Registration Statement No. 2-97813 on Form S-8 relating to the NYNEX 1984
Stock Option Plan;
o Post-Effective Amendment No. 1 to Registration Statement No. 2-97813 on
Form S-8 relating to the NYNEX 1984 Stock Option Plan;
o Registration Statement No. 33-23447 on Form S-8 relating to the NYNEX
Corporation UK Savings-Related Share Option Scheme;
o Registration Statement No. 33-33592 on Form S-3 relating to $500,000,000
of NYNEX Corporation Debt Securities;
o Registration Statement Nos. 33-34401 and 33-34401-01 on Form S-3 (as
coregistrant and guarantor) relating to $300,000,000 of NYNEX Capital
Funding Company Debt Securities, unconditionally guaranteed by NYNEX
Corporation;
34
<PAGE>
o Registration Statement No. 33-35212 on Form S-3 relating to the resale of
shares of NYNEX Common Stock in connection with the acquisition of
Lamarian Systems, Inc.;
o Registration Statement No. 33-35919 on Form S-8 relating to the NYNEX
1990 Stock Option Plan;
o Registration Statement No. 33-36342 on Form S-4 relating to the
acquisition of Stockholder Systems, Inc.;
o Registration Statement Nos. 33-48647 and 33-57945 on Form S-8 relating to
the NYNEX 1992 Non-Management Stock Option Plan;
o Registration Statement Nos. 33-48648 and 33-57947 on Form S-8 relating to
the NYNEX 1992 Management Stock Option Plan;
o Post-Effective Amendment Nos. 1 and 2 to Registration Statement No.
33-49105 on Form S-3 relating to the NYNEX Corporation Share Owner
Dividend Reinvestment and Stock Purchase Plan;
o Registration Statement Nos. 33-51147 and 33-51147-01 on Form S-3 (as
coregistrant and guarantor), which also constitutes Post-Effective
Amendment No. 1 to Registration Statement Nos. 33-34401 and
33-34401-01, relating to $1,331,000,000 of NYNEX Capital Funding Company
Debt Securities, unconditionally guaranteed by NYNEX Corporation;
o Registration Statement No. 33-51993 on Form S-8 relating to the Upstate
Partners Employees' Retirement Savings Plan;
o Post-Effective Amendment No. 1 to Registration Statement Nos. 33-51147
and 33-51147-01 on Form S-3, which also constitutes Post-Effective
Amendment No. 2 to Registration Statement Nos. 33-34401 and
33-34401-01, relating to $1,331,000,000 of NYNEX Capital Funding
Company Debt Securities, unconditionally guaranteed by NYNEX Corporation;
o Registration Statement Nos. 33-54693 and 333-00317 on Form S-8 relating
to the 1995 Stock Option Plan;
o Registration Statement No. 33-57943 on Form S-3 relating to 367,722
shares of NYNEX Common Stock;
o Registration Statement No. 33-53693 on Form S-3 relating to $900,000,000
of NYNEX Corporation Debt and Equity Securities, which also
constitutes Post-Effective Amendment No. 1 to Registration Statement
No. 33-33592; and
o Post-Effective Amendment No. 1 to Registration Statement No. 33-53693 on
Form S-3 relating to $900,000,000 of NYNEX Corporation Debt
and Equity Securities.
Coopers & Lybrand L.L.P.
New York, New York
March 21, 1996
35
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, NYNEX Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1995; and
WHEREAS, each of the undersigned is an Officer or both an Officer and a
Director of the Corporation;
NOW, THEREFORE, each of the undersigned hereby constitutes and appoints I. G.
Seidenberg, A. Z. Senter and P. M. Ciccone, and each of them severally, as
attorneys for the undersigned and in the undersigned's name, place and stead,
and in each of the undersigned's offices and capacities as an Officer or as both
an Officer and a Director of the Corporation, to execute and file such Annual
Report, and thereafter to execute and file any amendment or amendments thereto,
hereby giving and granting to said attorneys full power and authority to do and
perform all and every act and thing whatsoever requisite, necessary and/or
desirable to be done in and about the premises as fully, to all intents and
purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney
this 22nd day of March, 1996.
/s/Ivan Seidenberg /s/A. Z. Senter
- -------------------------- ------------------------------
I. G. Seidenberg A. Z. Senter
Chairman of the Board, Executive Vice President
Chief Executive Officer and Chief Financial Officer
and Director
/s/P. M. Ciccone
-------------------------------
P. M. Ciccone
Vice President and Comptroller
State of New York )
)ss.:
County of New York )
On the 22nd day of March 1996, personally appeared before me, I. G. Seidenberg,
A. Z. Senter and P. M. Ciccone, to me known and known to me to be the persons
described in and who executed the foregoing instrument, and they severally duly
acknowledged to me that they and each of them executed and delivered the same
for the purposes therein expressed.
Witness my hand and official seal this 22nd day of March 1996.
/s/Beth A. Clerc
----------------------------------
Beth A. Clerc
Notary Public, State of New York
No. 4982695
Qualified in Dutchess County
Commission Expires June 10, 1997
36
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, NYNEX Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1995; and
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints I. G.
Seidenberg, A. Z. Senter and P. M. Ciccone, and each of them severally, as
attorneys for the undersigned and in the undersigned's name, place and stead, as
a Director of the Corporation, to execute and file such Annual Report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
all and every act and thing whatsoever requisite, necessary and/or desirable to
be done in and about the premises as fully, to all intents and purposes, as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 21st day of March, 1996.
/s/ Frederic V. Salerno
- -----------------------
Frederic V. Salerno
Director
State of New York )
) ss.:
County of New York )
On the 21st day of March, 1996, personally appeared before me Frederic V.
Salerno of the Directors, all to me known and known to me to be the persons
described in and who executed the foregoing instrument, and such person duly
acknowledged to me that he or she executed and delivered the same for the
purposes therein expressed.
Witness my hand and official seal this 21st day of March, 1996.
/s/ Ina H. Callery
--------------------
Ina H. Callery
Notary Public, State of New York
No. 4834371
Qualified in Westchester County
Commission Expires June 30, 1997
37
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, NYNEX Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1995; and
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints I. G.
Seidenberg, A. Z. Senter and P. M. Ciccone, and each of them severally, as
attorneys for the undersigned and in the undersigned's name, place and stead, as
a Director of the Corporation, to execute and file such Annual Report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
all and every act and thing whatsoever requisite, necessary and/or desirable to
be done in and about the premises as fully, to all intents and purposes, as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this
21st day of March, 1996.
/s/ John Brademas
- -----------------
John Brademas
Director
State of New York )
) ss.:
County of New York )
On the 21st day of March, 1996, personally appeared before me John Brademas of
the Directors, all to me known and known to me to be the persons described in
and who executed the foregoing instrument, and such person duly acknowledged to
me that he or she executed and delivered the same for the purposes therein
expressed.
Witness my hand and official seal this 21st day of March, 1996.
/s/ Robert W. Erb
-------------------
Robert Erb
Notary Public, State of New York
No. 31-4808105
Qualified in New York County
Commission Expires January 31, 1997
38
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, NYNEX Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1995; and
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints I. G.
Seidenberg, A. Z. Senter and P. M. Ciccone, and each of them severally, as
attorneys for the undersigned and in the undersigned's name, place and stead, as
a Director of the Corporation, to execute and file such Annual Report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
all and every act and thing whatsoever requisite, necessary and/or desirable to
be done in and about the premises as fully, to all intents and purposes, as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this
18th day of March, 1996.
/s/R. W. Bromery
- --------------------
Randolph W. Bromery
Director
State of Massachusetts )
) ss.:
County of Hampden )
On the 18th day of March, 1996, personally appeared before me Randolph W.
Bromery of the Directors, all to me known and known to me to be the persons
described in and who executed the foregoing instrument, and such person duly
acknowledged to me that he or she executed and delivered the same for the
purposes therein expressed.
Witness my hand and official seal this 18th day of March, 1996.
/s/Linda M. Grimaldi
--------------------------
Linda M. Grimaldi
My Commission Expires June 28, 2002
39
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, NYNEX Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1995; and
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints I. G.
Seidenberg, A. Z. Senter and P. M. Ciccone, and each of them severally, as
attorneys for the undersigned and in the undersigned's name, place and stead, as
a Director of the Corporation, to execute and file such Annual Report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
all and every act and thing whatsoever requisite, necessary and/or desirable to
be done in and about the premises as fully, to all intents and purposes, as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this
20th day of March, 1996.
/s/ R. L. Carrion
- -------------------
Richard L. Carrion
Director
State of ) Commonwealth of Puerto Rico
) ss.: Municipality of San Juan
County of )
On the 20th day of March, 1996, personally appeared before me Richard L. Carrion
of the Directors, all to me known and known to me to be the persons described in
and who executed the foregoing instrument, and such person duly acknowledged to
me that he or she executed and delivered the same for the purposes therein
expressed.
Witness my hand and official seal this 20th day of March, 1996.
/s/ Brunhilda Santos de Alvarez
--------------------------------
Brunhilda Santos de Alvarez
Abodgada Notario
40
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, NYNEX Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1995; and
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints I. G.
Seidenberg, A. Z. Senter and P. M. Ciccone, and each of them severally, as
attorneys for the undersigned and in the undersigned's name, place and stead, as
a Director of the Corporation, to execute and file such Annual Report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
all and every act and thing whatsoever requisite, necessary and/or desirable to
be done in and about the premises as fully, to all intents and purposes, as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this
18th day of March, 1996.
/s/J.R. de Vink
- ------------------------
Lodewijk J. R. de Vink
Director
State of New Jersey )
) ss.:
County of Morris )
On the 18th day of March, 1996, personally appeared before me Lodewijk J. R. de
Vink of the Directors, all to me known and known to me to be the persons
described in and who executed the foregoing instrument, and such person duly
acknowledged to me that he or she executed and delivered the same for the
purposes therein expressed.
Witness my hand and official seal this 18th day of March, 1996.
/s/Athena E. Leonard
--------------------------
Athena E. Leonard
A Notary Public of New Jersey
My Commission Expires on April 5, 1999
41
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, NYNEX Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1995; and
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints I. G.
Seidenberg, A. Z. Senter and P. M. Ciccone, and each of them severally, as
attorneys for the undersigned and in the undersigned's name, place and stead, as
a Director of the Corporation, to execute and file such Annual Report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
all and every act and thing whatsoever requisite, necessary and/or desirable to
be done in and about the premises as fully, to all intents and purposes, as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this
18th day of March, 1996.
/s/Stanley P. Goldstein
- -----------------------
Stanley P. Goldstein
Director
State of New York )
) ss.:
County of Westchester )
On the 18th day of March, 1996, personally appeared before me Stanley P.
Goldstein of the Directors, all to me known and known to me to be the persons
described in and who executed the foregoing instrument, and such person duly
acknowledged to me that he or she executed and delivered the same for the
purposes therein expressed.
Witness my hand and official seal this 18th day of March, 1996.
/s/Joann Cangialosi
------------------------
Joann Cangialosi
Notary Public, State of New York
No. 010A6023478
Qualified in Bronx County
Commission Expires February 7, 1998
42
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, NYNEX Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1995; and
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints I. G.
Seidenberg, A. Z. Senter and P. M. Ciccone, and each of them severally, as
attorneys for the undersigned and in the undersigned's name, place and stead, as
a Director of the Corporation, to execute and file such Annual Report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
all and every act and thing whatsoever requisite, necessary and/or desirable to
be done in and about the premises as fully, to all intents and purposes, as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this
18th day of March, 1996.
/s/Helene L. Kaplan
- -------------------
Helene L. Kaplan
Director
State of New York )
) ss.:
County of New York )
On the 18th day of March, 1996, personally appeared before me Helene L. Kaplan
of the Directors, all to me known and known to me to be the persons described in
and who executed the foregoing instrument, and such person duly acknowledged to
me that he or she executed and delivered the same for the purposes therein
expressed.
Witness my hand and official seal this 18th day of March, 1996.
/s/Beverly Jaeger
------------------------
Beverly Jaeger
Notary Public, State of New York
No. 41-4666998
Qualified in Queens County
Certification Filed in New York County
Commission Expires August 31, 1996
43
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, NYNEX Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1995; and
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints I. G.
Seidenberg, A. Z. Senter and P. M. Ciccone, and each of them severally, as
attorneys for the undersigned and in the undersigned's name, place and stead, as
a Director of the Corporation, to execute and file such Annual Report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
all and every act and thing whatsoever requisite, necessary and/or desirable to
be done in and about the premises as fully, to all intents and purposes, as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this
21st day of March, 1996.
/s/ Elizabeth T. Kennan
- --------------------
Elizabeth T. Kennan
Director
State of Massachusetts )
) ss.:
County of Essex )
On the 21st day of March, 1996, personally appeared before me Elizabeth T.
Kennan of the Directors, all to me known and known to me to be the persons
described in and who executed the foregoing instrument, and such person duly
acknowledged to me that he or she executed and delivered the same for the
purposes therein expressed.
Witness my hand and official seal this 21st day of March, 1996.
/s/ Patricia Cardinale
-----------------------
Patricia Cardinale
Notary Public
My Commission Expires March 18, 1999
44
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, NYNEX Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1995; and
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints I. G.
Seidenberg, A. Z. Senter and P. M. Ciccone, and each of them severally, as
attorneys for the undersigned and in the undersigned's name, place and stead, as
a Director of the Corporation, to execute and file such Annual Report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
all and every act and thing whatsoever requisite, necessary and/or desirable to
be done in and about the premises as fully, to all intents and purposes, as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 18th day of March, 1996.
/s/Hugh B. Price
- -------------------
Hugh B. Price
Director
State of New York )
) ss.:
County of New York )
On the 18th day of March, 1996, personally appeared before me Hugh B. Price of
the Directors, all to me known and known to me to be the persons described in
and who executed the foregoing instrument, and such person duly acknowledged to
me that he or she executed and delivered the same for the purposes therein
expressed.
Witness my hand and official seal this 18th day of March, 1996.
/s/Elizabeth L. Stubbs
------------------------
Elizabeth L. Stubbs
Notary Public, State of New York
No. 24-4668223
Qualified in Kings County
Certified in New York County
Commission Expires January 31, 1997
45
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, NYNEX Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1995; and
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints I. G.
Seidenberg, A. Z. Senter and P. M. Ciccone, and each of them severally, as
attorneys for the undersigned and in the undersigned's name, place and stead, as
a Director of the Corporation, to execute and file such Annual Report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
all and every act and thing whatsoever requisite, necessary and/or desirable to
be done in and about the premises as fully, to all intents and purposes, as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 19th day of March, 1996.
/s/Walter V. Shipley
- --------------------
Walter V. Shipley
Director
State of New York )
) ss.:
County of New York )
On the 19th day of March, 1996, personally appeared before me Walter V. Shipley
of the Directors, all to me known and known to me to be the persons described in
and who executed the foregoing instrument, and such person duly acknowledged to
me that he or she executed and delivered the same for the purposes therein
expressed.
Witness my hand and official seal this 19th day of March, 1996.
/s/John B. Wynne
------------------------
John B. Wynne
Notary Public, State of New York
No. 31-4357105
Qualified in New York County
Commission Expires February 28, 1998
46
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, NYNEX Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an Annual Report on Form 10-K for the fiscal year ended December 31,
1995; and
WHEREAS, the undersigned is a Director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints I. G.
Seidenberg, A. Z. Senter and P. M. Ciccone, and each of them severally, as
attorneys for the undersigned and in the undersigned's name, place and stead, as
a Director of the Corporation, to execute and file such Annual Report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
all and every act and thing whatsoever requisite, necessary and/or desirable to
be done in and about the premises as fully, to all intents and purposes, as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 18th day of March, 1996.
/s/John R. Stafford
- -------------------
John R. Stafford
Director
State of New Jersey )
) ss.:
County of Morris )
On the 18th day of March, 1996, personally appeared before me John R. Stafford
of the Directors, all to me known and known to me to be the persons described in
and who executed the foregoing instrument, and such person duly acknowledged to
me that he or she executed and delivered the same for the purposes therein
expressed.
Witness my hand and official seal this 18th day of March, 1996.
/s/Michele V. Quarles
------------------------
Michele V. Quarles
A Notary Public of New Jersey
My Commission Expires March 18, 1999
47
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<ARTICLE> 5
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 93
<SECURITIES> 0
<RECEIVABLES> 2,636
<ALLOWANCES> 222
<INVENTORY> 141
<CURRENT-ASSETS> 3,687
<PP&E> 35,734
<DEPRECIATION> 18,679
<TOTAL-ASSETS> 26,220
<CURRENT-LIABILITIES> 3,993
<BONDS> 9,337
0
0
<COMMON> 447
<OTHER-SE> 5,632
<TOTAL-LIABILITY-AND-EQUITY> 26,220
<SALES> 0
<TOTAL-REVENUES> 13,407
<CGS> 0
<TOTAL-COSTS> 11,315
<OTHER-EXPENSES> 5
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 734
<INCOME-PRETAX> 1,710
<INCOME-TAX> 641
<INCOME-CONTINUING> 1,070
<DISCONTINUED> 0
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<CHANGES> 0
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</TABLE>
